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LIBRARY 

OF  THE 

University  of  California. 


Class 


Digitized  by  the  Internet  Archive 

in  2007  with  funding  from 

IVIicrosoft  Corporation 


http://www.archive.org/details/accountingpractiOOdaycrich 


ACCOUNTING   PRACTICE 


ACCOUNTING  PRACTICE 


BY 


CLARENCE   MUNRO   DAY 

II 
CERTIFIED    PUBLIC   ACCOUNTANT 
University  of  the  State  of  New  York 


9  J 


O'     »  1    »»» 


»,':',  s  'j  J  J 


D.    APPLETON    AND    COMPANY 
NEW   YORK 

1908 


^^t^ 


Copyright,   1908,  by 
D.   APPLETON   AND   COMPANY 


PuhUsJied  September,  1908 


l^AHO'-lUA 


INTRODUCTION 

The  idea  prevalent  some  years  ago,  that  an  accountant  was  sim- 
ply a  ''  bookkeeper  out  of  a  job,"  has  long  since  been  dispelled. 
To-day  the  business  has  attained  a  high  standard  as  a  profession. 

To  check  a  set  of  books,  and  simply  verify  the  clerical  accuracy 
of  the  work,  is  not  auditing  in  the  true  sense  of  the  word.  There  are 
methods  requiring  little  work  which  make  such  checking  unnecessary. 

The  accountant,  while  he  understands  bookkeeping,  is  more  than 
a  bookkeeper.  He  must  be  capable  of  dealing  with  the  difficult  prob- 
lems of  business  and  he  must  know  how  to  interpret  the  intricacies 
of  affairs  so  that  a  layman  can  comprehend  and  be  guided  by  his 
observations.  The  accountant  must  know  theory  in  order  properly  to 
understand  his  business;  but  a  man  able  and  proficient  in  theory  is 
not  necessarily  a  competent  accountant.  He  must  acquire  practice  by 
actual  experience,  in  order  to  develop  ability  as  an  accountant;  for 
it  is  the  art  of  applying  theory  in  practice  which  makes  the  theory 
valuable. 

In  the  natural  order  of  things,  we  learn  from  the  experience  of 
others,  and  the  advantage  each  generation  has  over  the  preceding  one 
lies  in  the  knowledge  gained  by  the  experience  of  the  preceding  gen- 
eration. 

The  business  of  accounting  has  developed  so  rapidly  that  the  ref- 
erence books,  essential  to  the  business  as  a  profession,  have  not  kept 
pace;  consequently  the  books  available  are  not  on  a  par  with  the  ref- 
erence books  of  other  professions. 

For  many  years,  it  has  been  the  duty  of  the  author  to  supervise 
the  work  of  others,  and  during  his  experience  he  made  notes  of  the 
best  methods  under  his  observation.  These  notes  have  been  valuable 
for  reference,  and  the  many  requests  from  prominent  accountants  for 
access  to  the  notes  have  influenced  the  author  to  publish  them. 

The  language  is  simple,  telling  how  to  do  certain  lines  of  work 
so  as  to  lead  directly  to  the  desired  results  and  avoid  repetition. 


vi  INTRODUCTION 

The  book  is  divided  into  four  parts,  namely : 

I.  Methods  of  Working, 
II.  Cost  Accounting, 

III.  Operating  Forms,  and 

IV.  Report  Forms. 

I.  The  first  part  of  the  book  treats  of  methods  of  working  which 
have  been  developed  by  years  of  experience  and  will  be  valuable  to 
any  accountant  who  desires  to  attain  a  high  standard  of  excellence. 
It  also  contains  miscellaneous  notes  which  are  the  opinions  of  com- 
petent auditors. 

II.  The  second  part  of  the  book  treats  cost  accounting  in  a  new 
and  original  way.  The  systems  are  all  simple  and  practical,  having 
been  successfully  worked  out.  The  original  working  instructions  are 
submitted,  which  made  repetition  necessary  in  some  instances,  for  it 
did  not  seem  advisable  to  eliminate  any  part  of  the  original  working 
instructions. 

III.  The  third  part  of  the  book  contains  the  operating  forms 
which  were  referred  to  in  so  many  different  places  that  it  was  con- 
sidered best  to  group  them.  The  author  suggests  that  the  student 
make  rough  copies  of  the  forms  necessary  to  each  system  and  study 
each  system  as  a  unit  instead  of  so  many  parts. 

IV.  The  fourth  part  of  the  book  is  devoted  to  report  forms  and 
forms  of  a  statistical  character.  The  first  nine  forms  are  never  sub- 
mitted as  the  main  exhibits  of  a  report,  but  are  generally  made  by  the 
auditor  as  a  basis  upon  which  he  can  prepare  his  report  and  other 
statistics.  From  Form  lo  on  are  the  forms  to  be  submitted  as  ex- 
hibits when  making  the  official  report. 


CONTENTS 


PART    I.     METHODS   OF   WORKING 

CHAPTER  PAGE 

I.     How  TO  Plan  and  Perform  a  General  Audit  in  Detail    .  3 

1 .  The  Character  of  the  Business 3 

2.  The  Books  Employed  and  Plan  of  Keeping  Them  4 

3.  The  Object  of  the  Audit 5 

4.  Auditing  a  Trading  Business 5 

5.  Audit  of  the  Cash     •. 6 

6.  Preliminary  Steps 6 

7.  Grouping  the  Books 7 

8.  Making  the  Working  Plan  of  the  Audit        ....  9 

9.  Order  of  Work 13 

10.  General  Suggestions 14 

II.     How  TO  Audit  the  Cash 17 

1.  Summary  of  Cash  Book  Account 19 

2.  Summary  of  the  Check  Book  Account  19 

3.  Summary  of  the  Pass  Book  Account 20 

4.  Vouch  Payments  with  Canceled  Vouchers   .  21 

5.  Reconciliation  of  Payments  and  Checks  21 

6.  Reconciliation  of  Checks  and  Canceled  Vouchers  22 

7.  Check  Deposits  with  Receipts                 .        .        .        .  23 

8.  Reconciliation  of  the  Receipts  and  Deposits        ...  23 

9.  Reconciliation  of  Check  Book  and  Pass  Book  Deposits     .  23 
10.  Vouch  Cash  with  Regular  Vouchers 25 

III.  How  to  Analyze  an  Account 27 

IV.  A  Financial  Audit 37 

V.     The  First  Audit  of  a  New  Corporation 44 

VI.     Making  Adjustments  to  a  Ledger 46 

VII.     Preparation  of  the  Report     .....•••  48 

VIII.     Locating  Differences  in  the  Ledger 54 

1.  To  Analyze  a  Ledger 54 

2.  How  to  Section  a  Ledger 57 

3.  How  to  Block  a  Ledger 60 

4.  When  to  Block  a  Ledger 63 

IX.     Planning  a  General  System  of  Books 65 

I ,  A  Trading  Business ^^ 

X.     General  Notes  and  Suggestions -77 

vii 


viii  CONTENTS 

PART    II.     COST   ACCOUNTING 

CHAPTER  PAGE 

I.     Cost  Systems  in  General 89 

1.  Elements  of  Cost .89 

2.  Kinds  of  Cost  Systems .91 

II.     Planning  the  System 93 

1 .  Planning  the  Controlling  Accounts 93 

2.  Method  of  Operation 98 

3.  The  General  Books  and  a  Cost  System         .        .        .        .101 

4.  How  to  Plan  the  Cost  System 102 

5.  Correct  Foundation  for  Cost  Figures  and  Reports      .        .108 

III.  Percentage  Costs 114 

1 .  Determining  Percentages 114 

2 .  Use  of  Percentages 119 

IV,  Installing  a  Cost  System 118 

V.     Schemes  for  Simplifying  Work 120 

VI.     Computing  Costs  where  No  System  Has  Been  Operated      ,      124 

VII.     Cost  Systems  with  Original  Working  Instructions       .        .128 

1.  Shoe  Carton  Factory  Cost  System 128 

2.  Cotton  Mill  Cost  System 135 

3.  Cost  System  for  a  Drug  Compounding  Laboratory  and 

Factory 146 

4.  Cost  System  for  a  Silk  Mill 152 

5.  Working  Instructions  for  a  Cost  System  for  Woolen  Mill  .  154 

6.  Outline  of  Cost  System  for  Lithographing  Company          .  161 

PART    III.     OPERATING   FORMS 173 

PART    IV.     REPORT    FORMS       .        .        . 217 

INDEX 313 


PART    I 
METHODS    OF    WORKING 


I     •     »    »       > 


I.      HOW    TO     PLAN     AND     PERFORM    A 
GENERAL  AUDIT   IN    DETAIL 

In  order  to  plan  an  audit,  it  is  necessary  to  consider  (a)  the 
character  of  the  business,  (b)  the  books  employed  and  the  plan  of 
keeping  the  books,  and  (c)  the  object  of  the  audit. 

The  Character  of  the  Business 

This  is  the  most  important  feature  to  be  considered  when  plan- 
ning an  audit,  for  the  nature  of  the  business  will  give  an  insight 
into  the  matters  to  be  provided  for  and  consequently  a  definite  idea 
of  the  books  required  by  the  business. 

The  idea  is  this :  When  you  enter  an  office  to  plan  an  audit,  think 
of  the  character  of  the  business  and  establish  in  your  mind  what 
classes  of  entries  are  essential  to  keep  records  of  the  business.  After 
you  have  established  in  your  mind  what  matters  should  have  been 
provided  for,  an  examination  of  the  books  as  hereinafter  described 
will  reveal  the  provisions  which  were  made  for  keeping  the  records 
of  the  business  and  assembling  the  results,  also  the  methods  em- 
ployed in  bringing  out  the  important  features  of  the  business. 

A  little  careful  thought  on  the  character  of  the  business  at  the 
beginning  of  the  examination  will  give  you  a  clearer  insight  into  the 
system  of  keeping  the  records,  and  enable  you  to  grasp  the  situation 
more  thoroughly  and  work  intelligently  and  with  confidence. 

Trading  Business 

If  it  is  a  trading  business,  they  buy  and  sell,  in  which  case  you 
will  expect  to  find  books  for  the  purchases  and  books  for  the  sales ; 
and  in  addition  to  the  books  which  are  peculiar  to  that  particular 
business  you  will  find  the  books  which  are  common  to  every  busi- 
ness :  namely,  the  cash  books,  the  journal  and  the  ledger. 

3 


o'S>S" 


.i^CCOUNTiNG    PRACTICE 


Manufacturing  Business 

If  it  is  a  manufacturing  business,  they  purchase  raw  material  and 
supplies,  manufacture  and  sell  or  ship  to  selling  agents.  In  that  case 
you  will  expect  to  find  books  for  the  purchases,  and  sales  or  ship- 
ments to  selling  agents,  pay  roll  books,  and  in  addition  to  the  books 
peculiar  to  the  business  you  will  find  the  books  which  are  common 
to  every  business :  namely,  the  cash  book,  the  journal  and  the  ledger. 

The  Books  Employed  and  Plan  of  Keeping  Them 

Make  a  complete  list  of  the  books  that  were  in  use  during  the 
period  to  be  examined.  While  making  this  list,  make  a  memorandum 
of  the  part  each  book  performs,  its  object  and  endeavor  to  establish 
in  your  mind  its  relation  to  the  system  as  a  whole,  also  the  names 
and  duties  of  the  clerks  engaged  in  keeping  the  books,  and  per- 
forming the  various  functions  associated  with  them.  At  the  same 
time  inquire  regarding  the  methods  of  entering  and  filing  orders, 
invoices,  receipts,  etc.  If  you  acquaint  yourself  with  the  methods 
of  the  office  at  the  outset,  it  will  enable  you  to  plan  the  work  so  as 
to  interfere  as  little  as  possible  with  the  regular  office  routine  and 
facilitate  matters  when  you  desire  to  investigate  any  questionable 
entry.  If  you  know  where  to  look  and  what  to  look  for,  it  will 
not  consume  a  fraction  of  the  time  that  will  be  required  if  you  are 
not  familiar  with  the  office  routine,  and  it  will  be  more  agreeable 
to  all  concerned,  than  if  you  are  obliged  to  make  indiscriminate  in- 
quiries regarding  every  matter  you  deem  it  expedient  to  investigate. 

In  examining  the  books  when  planning  an  audit,  give  especial 
attention  to  the  books  which  are  peculiar  to  the  business,  and  en- 
deavor to  learn  the  reason  and  object  of  every  diversion  from  ordi- 
nary methods. 

The  methods  employed,  in  making  records  which  are  similar, 
vary  owing  to  circumstances  and  diflferences  of  opinions  and  ideas, 
but  the  object  in  view  is  the  same  and  the  results  similar.  To  illus- 
trate: There  may  be  a  hundred  different  ways  of  preparing  records 
of  the  sales,  but  the  main  object  of  all  is  to  determine  the  amount 
of  the  sales,  and  the  resultant  must  necessarily  be  the  total  of  the 
sales.     Consequently  the  diversity  of  methods   should   not   confuse 


HOW    TO    PLAN    A    GENERAL    AUDIT  ^ 

you;  your  object  is  to  verify,  to  your  satisfaction,  the  total  amount 
of  the  sales,  the  analysis  being  a  secondary  consideration. 

The  Object  of  the  Audit 

The  object  bears  an  important  influence  when  you  are  planning 
an  audit,  for  it  is  the  first  consideration  of  the  audit  and  the  excuse 
for  its  performance;  nevertheless  it  is  impossible  to  offer  more  than 
suggestions  regarding  the  procedure,  especially  when  the  informa- 
tion desired  is  of  special  import  or  of  an  extraordinary  character. 
This  much  might  be  said :  When  you  are  called  upon  to  perform  an 
audit  with  a  view  to  obtaining  certain  information,  it  is  necessary 
to  keep  the  information  desired  foremost  in  your  mind,  to  give  it 
first  consideration  without  sacrificing  the  safeguards  necessary  to 
your  own  protection,  and  to  give  especial  attention  to  all  books  and 
items  bearing  on  the  matter  in  question. 

If  you  make  an  examination  of  a  set  of  books  simply  to  obtain 
certain  peculiar  information  and  neglect  to  satisfy  yourself  that  the 
cash  was  all  right  at  that  time,  the  layman,  should  an  embezzlement 
be  discovered  later,  will  alm#st  invariably  condemn  you  for  your 
neglect  and  will  not  consider  the  circumstances  of  your  case;  con- 
sequently it  is  inadvisable  to  render  such  service  unless  your  instruc- 
tions are  in  writing  and  specify  that  you  are  not  to  examine  the 
financial  end  of  the  business. 

Auditing  a  Trading  Business 

Illustrating  the  method  of  procedure  you  would  go  through  in 
familiarizing  yourself  with  a  business,  as  a  preliminary  step  to  plan- 
ning a  general  or  detailed  audit,  let  us  consider  a  trading  establish- 
ment. The  character  of  the  business  consists  of  buying  and  sell- 
ing. By  specializing  the  features  in  this  way  we  predetermine  what 
the  business  operations  are,  and  create  in  the  mind  an  outline  of  the 
business;  this  should  enable  you  to  grasp  the  situation  quickly  and 
help  you  to  formulate  your  ideas  of  what  is  necessary  to  prepare 
proper  records  of  the  transactions  of  the  business. 

Since  the  business  consists  of  buying  and  selling,  you  first  ascer- 
tain how  the  buying  and  selling  have  been  recorded. 


6  ACCOUNTING    PRACTICE 

Buying 

Who  did  the  ordering?  What  books  were  kept  to  record  the  pur- 
chases and  the  various  transactions  appertaining  thereto?  How  were 
the  returned  purchases  treated?  What  provisions  were  made  to 
take  advantage  of  discount  on  bills?  Who  was  authorized  to  approve 
these  and  what  safeguards  were  adopted  to  prevent  errors  of  omis- 
sion or  commission  in  settlement? 

Selling 

What  books  were  kept  to  record  the  sales  and  the  sales  credits? 
How  were  they  analyzed  and  summarized?  What  methods  were 
employed  to  avoid  errors  in  charging  and  shipping,  and  who  was 
authorized  to  approve  orders  for  shipment? 

Books  Common  to  Every  Business 

There  are  certain  books  common  to  every  business  and,  while  it 
is  not  intended  to  minimize  their  importance  to  the  business,  the  con- 
sideration of  their  character  is  not  important  when  endeavoring  to 
comprehend  the  scope  of  the  business.  These  books  are  the  cash 
book,  the  journal  and  the  ledger,  and  they  are  used  and  treated  the 
same  in  almost  every  business. 

Audit  of  the  Cash 

Plan  to  audit  the  cash  as  outlined  hereafter  and  ascertain  who 
had  charge  of  the  cash,  the  powers  of  the  persons  responsible  for  the 
cash  and  the  restrictions  upon  them.  Ascertain  the  methods  em- 
ployed in  handling  the  receipts,  the  channels  through  which  the  re- 
ceipts came  and  the  check  upon  them.  Ascertain  what  methods 
were  employed  in  making  the  disbursements,  the  persons  authorized 
to  approve  the  payments  and,  if  a  petty  cash  account  was  in  opera- 
tion, obtain  a  clear  conception  of  the  way  it  was  handled  and  its  rela- 
tion to  the  general  cash. 

Preliminary  Steps 

The  plan  of  the  books  should  unfold  itself  to  you  as  you  proceed 
with  your  preliminary  examination;  if  it  does  not,  it  will  be  better 


HOW    TO    PLAN    A    GENERAL   AUDIT  7 

to  devote  ample  time  to  quiet  thought,  until  you  feel  that  you  fully 
comprehend  the  situation. 

After  obtaining  a  well-defined  idea  of  the  books  and  methods  of 
conducting  the  business,  a  glance  at  the  trial  balance  will  reveal  the 
accounts  which  were  kept  to  control  the  business  and  will  show  the 
way  they  have  been  subdivided.  When  considering  the  trial  balance 
group  the  accounts  in  the  following  way: 

Capital  Accounts,  Representing  Assets  and  Liabilities. 
Nominal  Accounts,  Controlling  Expenses  and  Income. 
Personal  Accounts,  Accounts  with  Individuals  and  Companies. 

The  assets  and  liabilities  are  further  classified  as  fixed  and  cur- 
rent, the  fixed  assets  being  the  plant  and  equipment  accounts  and  the 
fixed  liabilities  being  the  capitalization  accounts,  which  include  capi- 
tal stock  issues  of  every  form  and  the  bonded  indebtedness.  The 
current  assets  are  the  active  accounts  of  assets,  such  as  cash,  bills 
receivable,  merchandise,  accounts  receivable,  unexpired  insurance, 
etc. ;  the  current  liabilities  are  the  active  accounts  of  liabilities,  such 
as  bills  payable,  accounts  payable,  loans,  etc. 

By  devoting  sufficient  consideration  to  the  accounts  which  have 
been  provided,  you  can  generally  determine  the  features  of  the  busi- 
ness that  it  was  desirable  to  have  predominate. 

Examine  carefully  the  profit  and  loss  account  and  see  how  the 
closing  of  the  accounts  was  performed;  if  the  journal  was  used  as 
a  medium  for  making  the  closing  entries,  study  carefully  the  closing 
entries  which  were  made  in  the  journal. 

Grouping  the  Books 

In  your  preliminary  examination  your  prepared  the  following  list 
of  books : 

Private  Ledger. 
General  Ledger. 
Purchase  Ledger. 
Sales  Ledger. 
Bad  Debt  Ledger. 


8  ACCOUNTING   PRACTICE 

Petty  Ledger. 

General  Journal. 

Purchase  Journal. 

Private  Journal. 

Purchase  Credit  Journal. 

General  Cash  Book. 

Petty  Cash  Book. 

Check  Book  Amsterdam  Trust  Co. 

Check  Book  First  National  Bank. 

Check  Book  Lincoln  National  Bank. 

Pay  Roll  Book. 

C.O.D.  Book. 

Sales  Book  (Press  copy  books). 

Sales  Credit  Book   (Press  copy  book). 

Approbation  Book. 

General  Ledger  Trial  Balance  Book. 

Purchase  Ledger  Trial  Balance  Book. 

Private  Ledger  Trial  Balance  Book. 

Sales  Ledger  Trial  Balance  Book. 

Receiving  Book. 

Shipping  Book. 

Stock  Book. 

Inventory  Book. 

Order  Book. 

To  follow  the  plan  of  specializing  according  to  the  peculiar  fea- 
tures of  the  business,  group  the  books  by  discriminating  between  the 
books  for  the  buying,  the  books  for  the  selling,  and  the  books  for 
the  centralization  and  control  of  the  business ;  by  arranging  them 
according  to  the  order  of  operation,  you  will  readily  observe  any 
omission. 

Buying:  Order  Book. 

Receiving  Book. 

Purchase  Journal. 

Purchase  Credit  Journal. 

Purchase  Ledger. 

Purchase  Ledger  Trial  Balance  Book. 


HOW    TO    PLAN    A    GENERAL   AUDIT  9 

Selling:  Stock  Book. 

Shipping  Book. 

Sales  Book. 

Approbation  Book. 

Sales  Credit  Book. 

Sales  Ledger. 

Sales  Ledger  Trial  Balance  Book. 

Petty  Ledger. 

Bad  Debt  Ledger. 

C.O.D.  Book. 
Cash  :  Cash  Book. 

Petty  Cash  Book. 

Check  Books. 

Pay  Roll  Book. 
Centralization:  General  Journal. 

General  Ledger. 

General  Ledger  Trial  Balance  Book. 

Private  Journal. 

Private  Ledger. 

Private  Ledger  Trial  Balance  Book. 

Inventory  Book. 

By  arranging  the  books  similarly  to  the  above  you  will  be  enabled 
to  determine  whether  each  division  of  the  books  is  complete. 


Making  the  Working  Plan  of  the  Audit 

After  you  have  carefully  revised  the  schedule  of  books  and 
arranged  them  according  to  the  features  of  the  business,  and  satisfied 
yourself  that  you  have  not  overlooked  any  of  the  books,  take  a  sheet 
of  paper  and  make  your  final  zvorking  plan  of  procedure:  Write  the 
name  of  each  book,  and  under  the  name  of  the  book  write  what  work 
you  propose  doing  in  connection  with  it.  Do  this  with  every  book 
in  the  order  in  which  it  appears  on  the  list,  viz: 

Order  Book: 

Used  to  verify  purchases. 

Receiving  Book: 

Used  to  verify  purchases. 
2 


lo  ACCOUNTING   PRACTICE 

Purchase  Journal: 

Vouch  the  entries  with  the  bills. 

Check  the  distribution  of  the  items. 

Check  the  footings. 

Prove  the  totals  of  the  distribution. 

Check  the  postings  to  the  purchase  ledger. 

Check  the  postings  of  results  to  general  ledger. 

Purchase  Credit  Journal: 

Check  the  distribution  of  the  items. 

Check  the  footings. 

Prove  the  totals  of  the  distribution. 

Check  the  postings  to  the  purchase  ledger. 

Check  the  postings  of  results  to  general  ledger. 

Purchase  Ledger: 

Check  footings  of  the  accounts. 

See  that  all  items  are  checked. 

Schedule  unchecked  entries. 

Make  careful  memorandum  of  all  irregularities. 

Purchase  Ledger  Trial  Balance: 

Verify  balances  for  beginning  of  period. 

Verify  balances  for  end  of  period. 

Make  copy  of  trial  balance  for  end  of  period. 

Compare  with  controlling  account  in  general  ledger. 

Stock  Book: 

Examine  general  appearance  of  entries. 
Compare  inventory  at  beginning  of  period. 
Compare  inventory  at  end  of  period. 
Make  a  memorandum  of  all  irregularities. 
Verify  entries  for  purchases. 
Verify  entries  for  shipments. 

Shipping  Book: 

Check  shipments  with  sales. 

Examine  general  appearance  of  entries. 


HOW    TO    PLAN    A    GENERAL   AUDIT  „ 

Sales  Book: 

Verify  extension  of  items. 

Check  footings  of  sales. 

Check  postings  to  sales  ledger. 

Check  postings  of  results  to  general  ledger. 

Approbation  Book  (Shiptnents  on  Approval) : 
Examine  general  appearance  of  entries. 
Check  transfers  of  charges  to  sales  book. 
Verify  return  of  entries  canceled. 

Sales  Credit  Book  : 

Verify  extension  of  items. 

Check  footings  of  sales  credits. 

Check  postings  to  sales  ledger. 

Check  postings  of  results  to  general  ledger. 

Sales  Ledger: 

Check  footings  of  account. 

See  that  all  items  are  checked. 

Schedule  unchecked  entries. 

Make  careful  memorandum  of  all  irregularities. 

Sales  Ledger  Trial  Balance  Book: 

Verify  trial  balance  for  the  beginning  of  period. 
Verify  trial  balance  for  the  end  of  period. 
Make  copy  of  trial  balance  for  the  end  of  period. 
Compare  with  controlling  account  in  general  ledger. 

Bad  Debt  Ledger: 

See  that  transfers  to  this  ledger  are  authorized. 
Make  schedule  of  all  bad  debts. 
Verify  cash  entries. 

CO.D.  Book: 

Check  CO.D.  entries  ^rom  sales  book. 

Verify  returns  with  receiving  book. 

Check  entries  in  cash  book. 

Make  list  of  outstanding  items. 

Compare   with   controlling  account   in  general   ledger. 


12  ACCOUNTING    PRACTICE 

Cash  Book: 

Balance  cash  on  hand. 

Make  a  summary  of  cash  book  account. 

Make  a  summary  of  check  book  account. 

Make  a  summary  of  pass  book  account. 

Vouch  cash  payments  with  canceled  checks. 

Reconcile   cash   payments  and  check  book  account. 

Reconcile  check  book  and  pass  book  accounts. 

Check  deposits  with  receipts. 

Reconcile  receipts  and  deposits. 

Vouch  cash  with  regular  vouchers. 

List  missing  vouchers. 

Check  postings  to  purchase  ledger. 

Check  postings  to  general  ledger. 

Check  postings  to  sales  ledger. 

Check  postings  to  petty  ledger. 

Check  postings  to  private  ledger. 

Petty  Cash  Book: 

Vouch  payments. 

Check  transfer  of  items  to  cash  book. 

List  missing  vouchers. 

Pay  Roll  Book: 

Check  footings  of  pay  rolls. 
Verify  items  with  time  books. 
Check  entries  in  cash  book. 

General  Journal: 

Examine  carefully  all  entries. 

Verify  or  vouch  all  entries. 

Copy  entries  which  are  questionable. 

Copy  entries  relating  to  bonds,  stocks  and  capital. 

Copy  entries  for  closing  books. 

Check  postings  to  general  ledger. 

Check  postings  to  purchase  ledger. 

Check  postings  to  sales  ledger. 

Check  postings  to  petty  ledger. 

Check  postings  to  bad  debt  ledger. 


HOW    TO    PLAN    A   GENERAL   AUDIT  13 

General  Ledger: 

Check  footings  of  accounts. 

See  that  all  items  are  checked. 

Schedule  unchecked  entries. 

Make  careful  memorandum  of  irregular  entries. 

General  Ledger  Trial  Balance  Book: 

Verify  balances  for  beginning  of  period. 

Verify  balances  for  end  of  period. 

Make  copy  of  trial  balance  for  end  of  period. 

Private  Journal: 

Examine  carefully  all  entries. 

Vouch  all  entries  with  general  books. 

Copy  all  entries  which  are  questionable. 

Copy  entries  relating  to  bonds,  stocks  or  capital. 

Copy  entries  for  closing  books. 

Check  postings  to  private  ledger. 

Private  Ledger: 

Check  footings  of  accounts. 

See  that  all  items  are  checked. 

Examine  carefully  alterations  and  corrections. 

Verify  trial  balance  for  beginning  of  period. 

Verify  trial  balance  for  end  of  period. 

Make  copies  of  trial  balances. 

If  you  wish  to  estimate  the  time  required  to  perform  the  audit, 
when  making  a  list  of  the  books  estimate  the  time  required  to  exam- 
ine each  book  and  check  the  work,  allowing  sufficient  time  for  pre- 
paring the  report.     The  total  is  the  time  required. 

Order  of  Work 

In  most  cases  it  is  advisable  to  commence  by  auditing  the  cash. 
This  will  enable  you  to  become  better  acquainted  with  the  business 
and  familiarize  yourself  with  the  system. 


14  ACCOUNTING    PRACTICE 

It  is  not  necessary  or  advisable  to  perform  the  audit  in  the  order 
of  the  plan,  nor  is  it  advisable  to  attempt  to  lay  out  the  plan  in  the 
order  you  intend  to  do  the  work.  After  completing  the  audit  of  the 
cash,  you  can  use  your  judgment  in  the  performance  of  the  balance 
of  the  audit.  As  each  particular  item  of  the  work  is  completed, 
check  oflf  the  item  on  your  plan  of  audit;  and  where  more  than  one 
person  is  engaged  on  the  audit,  the  name  of  the  auditor  and  the 
date  the  service  was  rendered  should  be  inserted  opposite  the  item 
of  work  on  the  plan  of  the  audit. 

If  any  part  of  the  work  is  only  partly  completed,  insert  the  word 
"  part "  on  the  plan  of  the  audit  to  indicate  that  it  was  not  com- 
pleted, and  make  suitable  notes  in  your  working  papers  to  enlighten 
your  successor  regarding  it,  so  that  he  will  be  enabled  to  commence 
where  you  left  off. 

General  Suggestions 

Where  the  audit  is  extensive  and  the  working  papers  are  numer- 
ous, number  each  working  paper  and  make  an  index  of  the  working 
papers.  Use  these  numbers  for  referring  from  one  paper  to  another. 
Group  the  papers  in  a  regular  order  similar  to  the  following,  so  that 
you  can  readily  refer  to  it: 

(i)  Plan  of  audit  and  index  to  working  papers. 

(2)  Trial  balances. 

(3)  Cash  and  bank  account  papers. 

(4)  Notes  and  text  of  report. 

(5)  Analysis  of  accounts. 

(6)  Statements  for  the  report. 

(7)  Memorandums  for  future  audits. 

If  you  have  assistants,  devote  your  attention  to  the  important 
matters  and  assign  the  assistants  to  the  extensive  checking,  vouching, 
and  footing.  When  directing  work  you  can  often  accomplish  more 
by  devoting  a  generous  portion  of  your  time  to  careful  thought,  con- 
sidering well  every  feature  and  circumstance.  The  time  employed 
making  careful  observations  is  not  wasted. 
The  maker  of  the  books,  the  style  of  ruling  and  all  the  various 


HOW    TO    PLAN    A    GENERAL   AUDIT  i^ 

details  may  be  important  points  especially  if  the  books  are  loose  leaf 
and  there  is  reason  to  believe  the  matter  is  not  the  original,  but  has 
been  copied  or  replaced. 

In  performing  an  audit,  it  is  the  duty  of  the  auditor  to  ascertain 
what  the  various  results  of  the  business  are  and  satisfy  himself  as 
to  their  correctness,  the  net  purchases,  the  net  sales,  etc.,  and  the 
changes  in  the  assets  and  liabilities. 

The  assets  and  liabilities  not  shown,  whether  contingent  or  other- 
wise, should  be  carefully  recorded  on  the  working  papers,  especially 
bills  receivable  which  have  been  discounted,  and  indorsements  made 
to  accommodate  others. 

An  auditor  should  use  every  means  to  determine  whether  all  the 
assets  which  ought  to  be  there  are  shown,  and,  if  there  is  reason 
to  believe  that  any  assets  have  been  dissipated  or  hypothecated, 
it  is  his  duty  to  qualify  his  report  to  that  effect  and  decline  to  cer- 
tify the  balance  sheet  unless  it  is  accompanied  by  the  text  of  the 
report. 

If  the  business  is  a  partnership,  the  auditor  should  examine  the 
partnership  agreement  and  make  sure  all  the  conditions  have  been 
complied  with,  and  see  that  all  entries  relating  to  the  partners  have 
been  properly  entered  on  the  books. 

If  the  auditor  is  not  thoroughly  familiar  with  the  composition 
of  the  accounts  after  performing  an  audit  in  detail,  it  is  advisable  for 
him  to  analyze  the  accounts  as  directed  in  the  instructions  relating 
to  the  performance  of  a  financial  audit. 

If  the  business  is  a  corporation,  the  auditor  should  examine  the 
articles  of  incorporation,  the  stock  books  and  the  minutes,  to  see  that 
the  purport  of  the  minutes  has  been  executed  and  properly  entered 
on  the  books. 

The  auditor  should  see  that  all  issues  of  stock  bonds  or  other 
capitalization  have  been  properly  made  and  the  values  absorbed  by 
the  business ;  if  they  have  not,  he  should  report  it. 

Adjustments  to  Ledger 

Do  not  make  adjustments  to  the  ledger  until  the  work  is  com- 
pleted. Make  a  complete  schedule  of  all  adjustments,  showing  full 
detail  of  the  items,  the  books  and  folios,  and  all  matters  relating  to 


l6  ACCOUNTING    PRACTICE 

them.     When  the  work  is  completed,  make  the  adjustments  as  here- 
inafter described. 

Corrections 

If  an  entry  was  made  incorrectly,  correct  it,  or,  better  still,  have 
it  corrected  at  once  and  make  a  note  of  all  corrections  on  a  sheet  used 
for  that  purpose  only. 


II.     HOW    TO    AUDIT    THE    CASH 

Outline  of  the  Method 

(i)   Make  a  summary  of  the  cash  book  account. 

(2)  Make  a  summary  of  the  check  book  account. 

(3)  Make  a  summary  of  the  pass  book  account. 

(4)  Vouch  the  cash  payments  with  the  canceled  vouchers  which 
were  returned  by  the  bank. 

(5)  Reconcile  the  total  payments  on  the  summary  of  the  cash 
book  account  with  the  total  checks  on  the  summary  of  the  check 
book  account. 

(6)  Reconcile  the  total  checks  on  the  summary  of  the  check  book 
account  with  the  total  canceled  vouchers  on  tlie  summary  of  the  pass 
book  account. 

(7)  Check  the  deposits  with  the  receipts  entered  in  the  cash  book. 

(8)  Reconcile  the  total  receipts  on  the  summary  of  the  cash  book 
account  with  the  total  deposits  on  the  summary  of  the  check  book 
account. 

(9)  Reconcile  the  total  deposits  on  the  summary  of  the  check 
book  account  with  the  total  deposits  on  the  summary  of  the  pass 
book  account. 

(10)  Vouch  the  cash  with  the  regular  vouchers  and  list  all  miss- 
ing vouchers. 

This  method  of  auditing  the  cash  is  simple  and  complete,  and 
enables  the  auditor  to  perform  an  audit  of  the  cash  in  an  incredibly 
short  time  when  the  work  is  extensive ;  it  also  makes  interesting  what 
would  otherwise  be  excessively  monotonous.  It  (i)  proves  the  cor- 
rectness of  the  footings  of  the  cash  book,  (2)  proves  the  correctness 
of  the  footings  of  the  check  book,  (3)  proves  the  correctness  of  the 
bank  account,  (4)  reveals  all  errors  and  adjustments  affecting  the 
cash,  (5)  reveals  all  contra  entries,  (6)  reveals  all  errors  in  the  check 
book  account,  (7)  reveals  all  errors  in  the  bank  pass  book  account, 

17 


i8  ACCOUNTING    PRACTICE 

(8)  exposes  all  items  which  were  entered  in  the  cash  book  and  not 
deposited,  (9)  exposes  all  items  which  passed  through  the  bank  ac- 
count without  being  entered  on  the  cash  book,  (10)  makes  it  impossi- 
ble to  overlook  errors  of  omission  or  commission,  and  (11)  develops 
positive  control  of  the  cash  and  bank  accounts. 

Balance  the  Cash  First 

Always  balance  the  cash  immediately;  this  is  imperative.  While 
doing  this,  make  memoranda  of  the  following: 

(i)  The  footing  of  the  debit  side  of  the  cash  book  and  the  last 
item  included  in  the  footing. 

(2)  The  footing  of  the  credit  side  of  the  cash  book  and  the  last 
payment  included  in  the  footing. 

(3)  The  footing  of  the  deposits  on  the  check  book  and  the 
amount  of  the  last  deposit  included  in  the  footing. 

(4)  The  footing  of  the  checks  on  the  check  book  and  the  number 
and  amount  of  the  last  check  included  in  the  footing. 

(5)  A  complete  detailed  statement  of  the  balance  compiled  by 
you.  If  there  is  cash  other  than  cash  in  banks,  make  a  minute  record 
of  it  and  be  very  particular  regarding  items  other  than  currency.  It 
is  necessary  that  full  details  of  all  tickets  be  made  a  part  of  your 
working  papers. 

Checks  Outstanding 

Most  bookkeepers  make  a  record  of  the  checks  outstanding  when 
the  pass  book  is  balanced.  If  this  has  been  the  custom  in  your  case, 
make  a  copy  of  the  list  of  outstanding  checks  for  the  beginning  and 
end  of  the  period  to  be  examined. 

Preserve  the  papers  relating  to  the  cash  balance  and  extend  the 
examination  up  to  the  point  where  the  balance  was  made,  to  satisfy 
yourself  that  the  balance  was  correct  and  in  order. 

Certificate 

Request  the  firm  to  secure  from  the  bank  a  letter  stating  the 
amount  on  deposit  on  the  day  when  the  account  was  balanced  and  file 
this  with  your  working  papers.  This  is  customary,  and  the  banks 
generally  provide  a  form  to  meet  such  requests. 


HOW    TO    AUDIT   THE   CASH  19 

1.     Summary  of  Cash  Book  Account 

Make  a  summary  of  the  cash  book  account,  showing  the  balance 
on  hand  at  the  beginning  of  the  period,  the  receipts  according  to  the 
cash  book,  the  payments  according  to  the  cash  book  and  the  balance 
at  the  end  of  the  period,  similar  to  the  following: 

Summary  of  the  Cash  Book  Account 

Balance  Jan.  i,  1891 .  .$10,601.15  payments. 

RECEIPTS.  January,.  1891   $10,415.70 

Jan.,   1891    ..$9,610.51  February,  1 89 1   11,217.65 

Feby.,    1891..  10,408.22  March,  1891    13,371.52 

March,   1891.15,310.75  

Total  Payments   $35,004.87 

Total  Receipts   $35,329.48      Bal.  Mch.  31,  1891...    10,925.76 

$45,930.63  $45,930-63 


2.     Summary  of  the  Check  Book  Account 

Make  a  summary  of  the  check  book  account  for  the  same  period, 
showing  the  balance  on  hand  according  to  the  check  book  at  the  begin- 
ning of  the  period,  the  deposits,  the  checks  drawn  and  the  balance  on 
hand  at  the  end  of  the  period,  similar  to  the  following: 

Summary  of  the  Check  Book  Account 

Balance  Jan.   i,   1891.  $8,745.63        checks. 

DEPOSITS.  January,   1891   $10,315.91 

Jan.,  1891  ..$10,752.63  February,  1891   12,314.21 

Feby.,    1891.  11,822.31  March,  1891    12,982.15 

March,  1891.  14,987.16 

Total   Checks    $35,612.27 

Total  Deposits    $37,562.10       Balance    10,695.46 

$46,307.73  $46,307.73 


20  ACCOUNTING    PRACTICE  ^ 

3.     Summary  of  the  Pass  Book  Account 

Make  a  summary  of  the  pass  book  account  covering  the  period. 
Show  the  balance  on  hand  according  to  the  pass  book  at  the  begin- 
ning of  the  period,  the  deposits,  the  canceled  vouchers  returned  by  the 
bank  and  the  balance  at  the  end  of  the  period,  as  follows : 

Summary  of  the  Pass  Book  Account 

Balance  Jan.  i,  1891 .  .$11,431.22  canceled  vouchers. 

DEPOSITS.  January,   1891   $14,382.91 

Jan.,    1 89 1.. $10,752.63  February,    1891    11,374.63 

Feby.,  1891.    11,822.31  March,  1891    12,222.57 

March,  1891.  14,007.52  

Total  Vouchers    $37,980.11 

Total  Deposits    $36,582.46      Bal.  Mch.  31,  1891...    10,033.57 

$48,013.68  $48,013.68 

In  making  the  summaries  of  the  cash  book,  check  book  and  pass 
book  accounts,  endeavor  to  have  the  summaries  conform  to  the  clos- 
ings which  were  made  on  each  book,  for  it  is  very  easy  to  eliminate 
the  matter  belonging  to  the  prior  or  subsequent  periods.  That  is, 
if  the  period  being  examined  is  the  month  of  June  and  the  pass 
book  was  not  balanced  since  May  20th,  commence  the  pass  book 
account  at  May  20th,  have  pass  book  balanced,  and  bring  summary 
to  date. 

If  there  are  several  cash  books,  make  a  summary  for  each  and 
every  book  and  then  make  a  summary  of  all  the  cash  books,  so  that 
you  know  the  total  cash  received  and  paid. 

If  there  are  several  bank  accounts,  make  a  summary  of  each  and 
every  check  book  and  make  a  summary  of  all  the  check  books ;  also 
make  a  summary  of  each  and  every  bank  pass  book  and  make  a 
summary  of  all  the  pass  books. 

4.     Vouch  Payments  with  Canceled  Vouchers 

Vouch  the  cash  payments  with  the  checks  returned  by  the  bank. 
If  you   use  a  blue  pencil,  make  a  blue   double  check  mark  on  the 


HOW   TO    AUDIT    THE   CASH  21 

summary  of  the  Pass  Book  Account  to  indicate  that  you  have 
vouched  the  cash  with  the  checks  and  used  a  blue  pencil  to  establish 
the  identity  of  the  items  which  were  checked.  In  making  check  marks 
on  the  books,  be  careful  and  make  a  small,  neat  and  distinctive  mark; 
take  pride  in  having  them  appear  regular  instead  of  slovenly  and 
hideous.     (Little  things  express  character.) 

When  vouching  the  items  of  the  cash  book  with  the  checks,  exam- 
ine the  indorsements  and  compare  the  payee  with  the  cash  book  entry ; 
if  you  notice  any  irregularity  in  the  indorsement  or  payee,  make  a 
memorandum  of  it,  and  make  a  small  cross  which  will  attract  your 
attention  when  you  are  vouching  the  cash  payments  with  the  vouch- 
ers. In  making  notes  relating  to  checks,  enter  on  your  working 
papers  the  full  details  of  the  checks. 

Make  a  list  of  all  checks  and  bank  charges  which  do  not  appear 
to  be  entered  on  the  cash  book. 

When  all  the  checks  which  were  returned  by  the  bank  have  been 
checked  off  on  the  cash  book,  make  a  small  circle  (o)  opjxisite  each 
payment,  which  is  for  a  check  outstanding  at  the  end  of  the  period. 
If  you  have  no  list  of  them,  this  is  the  time  to  prepare  a  list  of  checks 
outstanding. 

Make  a  schedule  of  the  items  of  payments  entered  on  the  cash 
book  which  were  not  checked. 

5.     Reconciliation  of  Payments  and  Checks 

Reconcile  the  total  payments  according  to  the  summary  of  the 
cash  book  account  and  the  total  checks  according  to  the  summary  of 
the  check  book  account,  as  follows: 

CASH  BOOK         CHECK  BOOK 
ACCOUNT.  ACCOUNT. 

Cash  book  payments,  as  per  cash  book $35,004.87 

Cash  book  items  not  checked .  $200.00 

Checks,  as  per  check  book 35>6i2.27 

Checks  entered  subsequent  period 230.30 

Exchange,  etc.,  not  on  cash  book 577- 10 

$35,812.27  $35,812.27 


22  ACCOUNTING    PRACTICE 

6.     Reconciliation  of  Checks  and  Canceled  Vouchers 

Reconcile  the  total  checks  according  to  the  summary  of  the  check 

book  account  and  the  total  canceled  vouchers  returned  by  the  bank 
according  to  the  pass  book  account,  as  follows: 

CHECK  BOOK  PASS  BOOK 

ACCOUNT.  ACCOUNT. 

Checks,  as  per  check  book $35,612.27 

Outstanding  January    ist 2,685.59 

Canceled  vouchers,  as  per  bank $37,980.11 

Outstanding  March   31st 317-75 

$38,297.86  $38,297.86 
Reconciliation  of  Cash  Payments  and  Canceled  Vouchers 

CASH  BOOK  PASS  BOOK 

ACCOUNT.  ACCOUNT. 

Payments    $35,004.87  $37,980.1 1 

Checks  not  on  cash  book 230.30 

Exchange,  etc.,  not  on  cash  book 577- 10 

Checks  of  prior  account 2,685.59 

Outstanding  end   of  period 317-75 

Cash  items  not  vouched  with  checks 200.00 


$38,497-86  $38,497-86 

If  the  results  do  not  agree,  it  should  not  take  you  long  to  ascertain 
what  the  trouble  is ;  for,  if  your  work  has  been  done  correctly,  it  must 
be  one  of  three  things,  viz. :  ( i )  a  check  missing  which  passed  through 
the  bank,  (2)  bank  account  incorrect  or  (3)  footings  wrong  on  check 
or  cash  books. 

If  the  results  agree,  you  know  wherein  the  cash  book,  check  book 
and  bank  book  accounts  differ  and  can  devote  your  attention  to  the 
extraordinary  items  which  developed  as  the  work  progressed. 

Examine  cautiously  every  item  on  the  list  of  "  canceled  bank 
vouchers  not  entered  on  the  cash  book,"  and  give  especial  attention  to 
the  list  of  items  on  the  cash  book  which  were  not  paid  through  the 
bank. 


HOW   TO   AUDIT   THE   CASH  23 

7.     Check  Deposits  with  Receipts 

If  the  records  are  in  such  condition  that  it  is  possible  to  do  so, 
check  the  receipts  entered  in  the  cash  book  with  the  deposits  entered 
in  the  pass  book.  If  inconvenient  to  check  the  receipts  direct  to  the 
pass  book,  check  the  receipts  with  the  deposits  entered  on  the  stub  of 
the  check  book  and  check  the  totals  to  the  pass  book. 

Make  a  list  of  all  items  in  the  pass  book  which  do  not  appear  on 
the  cash  book  and  make  a  list  of  all  items  on  the  cash  book  which 
were  not  deposited. 


8.     Reconciliation  of  the  Receipts  and  Deposits 

Reconcile  the  total  receipts  according  to  the  summary  of  the  cash 
book  and  the  total  deposits  according  to  the  summary  of  the  check 
book  account,  as  follows: 

CASH  BOOK         CHECK  BOOK 
ACCOUNT.  ACCOUNT. 

Receipts,  as  per  cash  book $35,329.48 

Receipts   prior   account 1,855.52 

Deposits,  as  per  check  book $37,562.10 

Cash  book  items  not  deposited 200.00 

Deposits  not  on  cash  book 577- 10 

$37,762.10  $37,762.10 


9.     Reconciliation  of   Check  Book  and  Pass  Book 

Deposits 

Reconcile  the  total  deposits  according  to  the  summary  of  the  check 
book  and  the  summary  of  the  pass  book,  as  follows: 

CHECK  BOOK  PASS  BOOK 

ACCOUNT.  ACCOUNT. 

Deposits    $37,562.10  $36,582.46 

Deposits   made   subsequent   period 979-64 


$37,562.10  $37,562.10 


24  ACCOUNTING    PRACTICE 


Reconciliation  of  Cash  Receipts  and  Pass  Book  Deposits 

CASH  BOOK  PASS  BOOK 

ACCOUNT.  ACCOUNT. 

Receipts,  as  per  cash  book $35,329.48 

Deposits,  as  per  pass  book $36,582.46 

Receipts   prior   account 1,855.52 

Deposited   subsequent  period 979-64 

Deposits  not  on  cash  book 577*  10 

Cash  book  items  not  deposited 200.00 

$37,762.10  $37,762.10 

If  the  cash  book,  check  book  and  bank  pass  book  accounts  agree, 
it  is  hardly  necessary  to  check  the  footings  of  the  cash  book  and 
check  books;  nevertheless,  it  is  always  advisable  to  prove  all  the 
footings. 

Where  all  receipts  were  deposited,  regard  with  suspicion  every 
item  entered  in  the  cash  book  as  received  and  not  deposited  in  the 
bank,  and  regard  with  suspicion  every  deposit  in  the  bank  account 
which  was  not  entered  on  the  cash  book. 

Report  every  case  where  money  was  drawn  from  the  bank  account 
and  not  entered  on  the  cash  book,  no  matter  if  it  was  deposited  again 
later  on. 

Report  every  note  negotiated  which  was  not  entered  on  the  cash 
book. 

See  that  all  receipts  were  deposited  for  the  amount  entered  on  the 
cash  book  and  be  very  careful  regarding  discounts.  If  discount  was 
charged  as  an  offset  to  the  amount  on  the  cash  book,  be  sure  the  check 
deposited  in  the  bank  account  was  for  the  short  amount  entered  as 
received  on  the  cash  book. 

When-  verifying  receipts  for  interest  or  other  payments  on  mort- 
gages, notes,  etc.,  examine  the  notes  and  check  off  the  payments 
entered  on  the  backs  of  the  notes,  to  make  sure  the  entries  were  prop- 
erly made  on  the  cash  book. 


HOW  TO    AUDIT   THE    CASH  25 

10.     Vouch  Cash  with  Regular  Vouchers 

Inquire  who  was  authorized  to  approve  vouchers  for  payments, 
before  commencing  to  vouch  the  cash  with  the  regular  vouchers  which 
are  the  receipts  for  the  payments. 

Vouch  the  cash  payments  with  the  regular  vouchers,  making  a 
small  initial  letter  mark  to  indicate  its  character.  Devote  special 
attention  to  the  items  which  you  marked  with  a  cross  or  which  were 
not  checked  at  all,  when  you  were  vouching  the  payments  with  the 
canceled  checks. 

If  there  was  a  petty  cash  book,  vouch  the  cash  book  payments  with 
the  petty  cash  book,  making  the  check  mark  with  a  red  pencil. 

Check  the  items  on  the  cash  book  for  receipts  which  were  absorbed 
by  the  petty  cash  account. 

When  vouching  payments  for  notes,  bonds  and  mortgages  which 
were  retired,  be  sure  to  see  the  original  documents  and  if  they  were  not 
canceled,  confer  with  the  proper  officials  and  insist  upon  having  them 
canceled ;  if  they  decline  to  cancel  them,  report  the  facts  of  the  case. 

When  vouching  payments  for  interest  on  notes,  bonds,  etc.,  be 
sure  to  ascertain  whether  the  interest  payments  were  properly  made, 
and  if  there  were  coupons,  see  that  they  were  canceled. 

When  vouching  payments  for  investments  in  stocks  and  bonds, 
require  the  broker's  memorandum  of  the  sale  and  see  if  the  checks 
were  made  direct  to  the  broker;  examine  the  securities  to  see  that 
they  were  registered  in  the  name  of  the  company. 

When  vouching  payments  for  purchases  of  realty,  require  the 
deed  and  at  least  see  that  this  has  the  recording  clerk's  memorandum 
entered  thereon ;  note  also  date  recorded. 

When  vouching  payments  for  certificates  of  deposit,  notice  par- 
ticularly the  date,  and  regard  suspiciously  a  change  of  date;  see  also 
that  the  certificate  is  registered  in  the  name  of  the  company. 

When  vouching  payments  which  require  the  approval  of  the 
Board  of  Directors,  examine  the  minutes  and  see  if  the  payments 
were  properly  authorized. 

When  vouching  payments  for  dividends,  examine  the  minutes  and 
see  that  they  were  properly  authorized  by  the  Board  of  Directors  and 
that  the  dividends  were  equitable  distributions  to  all  the  stockholders. 


26  ACCOUNTING    PRACTICE 

When  vouching  payments  for  salary  of  the  officers,  see  that  same 
were  properly  authorized  by  the  Board  of  Directors. 

When  vouching  payments  for  office  salaries  or  pay  rolls,  satisfy 
yourself  that  these  are  correct  and  report  all  matters  which  appear  to 
be  irregular  or  extraordinary. 

In  all  your  work,  use  colored  pencils  and  peculiar  marks  for 
specific  purposes  so  that  you  can  identify  a  check  mark  by  referring 
to  your  working  papers.  Then,  if  you  desire  to  know  why  you 
checked  an  item  which  is  questioned,  the  check  mark  will  indicate  it. 

In  making  periodical  audits,  do  not  neglect  to  refer  to  the  working 
papers  of  the  prior  audit  and  verify  the  former  figures  before  com- 
mencing. 

Be  deliberate  in  what  you  do,  for  accuracy  is  of  vital  importance 
and  haste  only  means  a  waste  of  time  and  annoyance. 

It  is  the  auditor's  duty  to  ascertain  whether  all  the  cash,  which 
should  have  been  received,  has  been  received  and  entered  in  proper 
form,  also  that  a  full  and  complete  record  has  been  made  of  each  and 
every  transaction.  All  the  business  should  be  spread  on  the  books. 
If  you  make  a  careful  examination  of  the  cash  first  and  satisfy  your- 
self that  it  is  correct  or  ascertain  wherein  it  is  not  as  it  should  be, 
you  will  find  it  much  easier  to  proceed  with  the  audit  of  the  books; 
you  will  have  more  confidence  in  your  work  than  if  you  defer  the 
examination  of  the  cash  until  you  have  wearied  yourself  with  the 
rest  of  the  audit.  There  are  many  unforeseen  contingencies  which 
might  occur  that  would  make  it  difficult  for  you  to  give  the  cash 
proper  attention,  if  you  defer  the  examination  of  same  until  the  last. 

If  you  uncover  what  appears  to  be  fraud  or  embezzlement,  do  not 
mention  it  until  you  are  absolutely  certain  of  your  position.  In  the 
majority  of  cases  it  is  advisable  to  wait  until  you  have  completed  the 
audit  of  the  cash  before  exposing  the  culprit.  If,  however,  you  are 
certain,  and  there  is  a  possibility  of  the  person  escaping,  it  may  be 
advisable  to  mention  your  suspicions,  stating  the  facts  without  color- 
ing them.  Qualify  what  you  say  with  the  statement  that,  as  the 
work  is  incomplete,  you  are  not  yet  in  position  to  give  definite  infor- 
mation, but  thought  it  advisable  to  call  attention  to  the  facts.  If 
you  are  under  authority,  consult  your  superiors  before  making  a 
verbal  report  regarding  any  matter. 


III.     HOW  TO  ANALYZE  AN   ACCOUNT 

To  analyze  an  account  is  to  classify  the  elementary  items  of  the 
account  by  grouping  them  under  several  headings,  in  order  to  obtain  a 
more  definite  knowledge  of  its  composition. 

This  is  one  of  the  most  important  functions  of  an  auditor,  and  an 
acquired  habit  of  exercising  great  care  in  analyzing  will  be  of  ines- 
timable value  to  him. 

The  ordinary  account  conveys  little  intelligence  other  than  what 
the  heading  implies  and  very  often  that  is  misleading;  therefore,  in 
order  to  obtain  definite  knowledge  of  the  composition  of  an  account, 
it  is  necessary  to  examine  it  in  detail.  This  can  best  be  accomplished 
by  commencing  at  the  beginning  and  examining  every  item  individ- 
ually, in  the  order  of  the  entry,  during  which  procedure  it  is  a  very 
simple  matter  to  group  the  elementary  items  of  the  account  in  any 
manner  desired,  with  the  aid  of  a  sheet  of  analysis  paper. 

There  are  three  methods  of  analyzing  an  account,  and,  while  the 
results  obtained  will  be  the  same,  there  are  circumstances  which  make 
it  more  desirable  to  adopt  one  than  another.    The  three  methods  are : 

The  simple  analysis. 

The  comprehensive  analysis. 

The  analysis  for  a  summary  account. 

Any  one  of  these  three  methods  can  be  employed  for  any  kind  of 
work. 

The  simple  analysis  is  the  method  in  which  the  items  are  dis- 
tributed in  the  columns  on  the  analysis  sheet,  without  providing  any 
means  of  referring  to  where  the  items  appear  in  the  account  or  where 
the  items  originated.  It  is  the  method  commonly  used  by  auditors  be- 
cause it  requires  less  time  than  either  of  the  other  methods. 

The  comprehensive  analysis  provides  a  record  of  where  the 
items  appear  on  the  books  of  original  entry  and  is  very  satisfactory 

27 


28  ACCOUNTING   PRACTICE 

when  giving  testimony ;  for  the  most  essential  thing  then  is  to  be  able 
to  refer  your  inquisitor  to  the  place  where  the  items  appeared  on  the 
books  of  original  entry. 

The  analysis  for  a  summary  account  shows  a  true  copy  of  the 
account,  given  where  the  items  appeared  on  the  books  of  original  entry 
and  the  analysis  of  each  and  every  item  of  the  account.  It  is  the  most 
satisfactory  method  for  all  purposes,  but  as  it  requires  considerable 
time  it  is  not  usually  employed. 

The  copy  of  the  ledger  account  shown  is  a  case  where  each  of  the 
various  items  of  the  account  specifies  what  the  charge  was  made  for, 
but  in  bookkeeping  this  is  the  exception  rather  than  the  rule,  and  if 
it  is  customary  in  the  case  in  hand,  it  would  not  be  advisable  to  accept 
it,  for  it  is  the  duty  of  the  auditor  to  refer  to  the  original  entry  and 
verify  each  item.  Never  take  anything  for  granted,  and  never  accept 
any  person's  word  when  it  is  possible  for  you  to  ascertain  the  true 
nature  of  an  item.  In  all  cases  where  statements  of  any  character 
affecting  your  work  are  made,  always  make  a  memorandum  on  your 
working  papers  of  the  statement,  the  date,  and  the  name  of  the  party 
making  the  statement,  and  as  far  as  possible  verify  it.  If  the  state- 
ment has  any  bearing  on  the  matter  to  be  reported,  embody  in  your 
report  the  statement  and  the  details  relating  to  it. 

The  Simple  Analysis  of  an  Account 

A  copy  of  an  account  on  page  no  of  ledger  No.  4  of  the  books 
of  Jones  and  Kilby  is  submitted  to  illustrate  the  method  of  pro- 
ceeding. As  the  heading  of  the  account  implies,  cartage,  freight  and 
expressage  were  charged  to  this  account,  and  you  find  it  necessary  to 
know  the  total  amount  of  each  in  order  to  make  a  satisfactory  report. 

Preparing  the  Analysis  Sheet 

Take  a  piece  of  analysis  paper,  and  make  a  memorandum  of  the 
following  at  the  top  of  the  analysis  sheet  (see  page  31). 

(i)  The  number  and  name  of  ledger  and  the  page  of  the  account. 

(2)  The  name  of  the  company. 

(3)  A  comprehensive  description  of  the  analysis,  and 

(4)  The  period  covered  by  the  analysis. 


HOW    TO    ANALYZE    AN    ACCOUNT  29 

The  following  is  an  illustration  of  the  headings  for  an  analysis 
sheet,  viz: 

"Ledger  4,  Page  no  Jones  and  Kilby 

"  Analysis   of   Express,    Cartage   and    Freight    Account 
"  For    the    three    months    ending    March    31st,    1890." 

In  writing  your  description  of  the  account  for  the  heading  of  the 
analysis  sheet,  make  an  exact  copy  of  the  name  of  the  account  as  it 
appears  on  the  ledger. 

In  this  case,  it  is  desirable  to  divide  the  items  of  the  account  into 
three  different  classes ;  so  you  head  a  column  "  Expressage,"  another 
"  Cartage,"  and  another  "  Freight "  as  shown  on  the  copy  of  the 
analysis. 

Deciding  the  Headings  for  the  Columns 

When  making  the  analysis,  the  items  of  the  account  can  be  dis- 
tributed on  the  analysis  sheet  under  as  many  headings  as  the  circum- 
stances warrant ;  but  when  making  up  the  report,  it  is  not  advisable  to 
submit  a  long  list  of  items.  It  conveys  nothing  to  the  average  mind, 
and  only  confuses ;  whereas  the  items  can  be  grouped  under  a  few 
selected  headings  which  will  give  a  definite  idea  of  the  composition  of 
the  account. 

For  illustration  we  will  assume  that  the  bookkeeper  simply  made 
the  entry  "  January  10,  1890  Cash  71  $14.20 "  and  made  ditto 
marks  for  the  other  items  which  were  posted  to  the  account.  In 
that  case,  he  would  have  nothing  to  indicate  the  composition  of  the 
account  and  would  not  know  what  headings  to  use  until  he  com- 
menced analyzing  the  account.  The  first  item  examined  would  be 
the  $14.20;  it  having  been  posted  from  the  cash  book,  reference  to 
the  cash  book  would  show  the  expenditure  had  been  made  for  cart- 
age, in  which  case  he  would  head  a  column  "  Cartage  '*  and  enter 
the  $14.20  in  it.  Reference  to  the  original  entry  for  the  next  item 
of  the  account  would  reveal  the  item  for  freight  "$115.70,"  and  he 
would  head  a  column  "  Freight  "  and  enter  the  amount  in  the  column, 
and  so  continue  through  the  entire  account. 


30  ACCOUNTING   PRACTICE 

Analyzing  the  Debit  Side  of  an  Account 

The  first  item  of  the  account,  Cartage  $14.20,  should  be  entered 
in  the  column  headed  "  Cartage  "  on  the  analysis  sheet. 

The  next  two  items,  Freight  $115.70  and  $94.20,  should  be  entered 
in  the  column  headed  "  Freight "  on  the  analysis  sheet. 

The  next  item.  Cartage  $11.23,  should  be  entered  in  the  column 
headed  "  Cartage  "  on  the  analysis  sheet. 

The  next  item,  Expressage  $1.25,  should  be  entered  in  the  column 
headed  "  Expressage  "  on  the  analysis  sheet. 

The  next  item,  Cartage  $115.80,  should  be  entered  in  the  column 
headed  "  Cartage  "  on  the  analysis  sheet. 

The  next  two  items,  Expressage  $2.25  and  $1.40,  should  be  en- 
tered in  the  column  headed  "  Expressage  "  on  the  analysis  sheet. 

The  next  item.  Cartage  $41.75,  should  be  entered  in  tlie  column 
headed  "  Cartage  "  on  the  analysis  sheet. 

The  next  four  items,  Expressage  $0.40,  $1.50,  $3.05,  $1.15,  should 
be  entered  in  the  column  headed  "  Expressage  "  on  the  analysis  sheet. 

The  next  two  items,  Cartage  $10.73  ^^^^  $4-75  should  be  entered  in 
the  column  headed  "  Cartage  "  on  the  analysis  sheet. 

The  next  item.  Freight  $104.71,  should  be  entered  in  the  column 
headed  "  Freight "  on  the  analysis  sheet. 

The  next  and  last  item  on  the  debit  side  of  the  account,  Expressage 
$4.35  should  be  entered  in  the  column  headed  "  Expressage  "  on  the 
analysis  sheet. 

All  the  debit  items  of  the  account  having  been  examined  and  dis- 
tributed on  the  analysis  sheet,  the  actual  analysis  of  the  debit  side 
of  the  account  is  completed. 

Foot  the  columns  on  the  analysi-s  sheet.  Add  the  totals  of  the  col- 
umns, and  prove  the  result  with  the  ledger  account.  Be  absolutely  cer- 
tain of  the  proof,  and  never  leave  it  until  you  know  it  is  correct. 

Make  an  analysis  of  the  credit  side  of  the  account  on  the  same 
plan  as  the  debit. 

Deduct  the  total  of  the  analysis  of  the  credit  side  of  the  account 
from  the  total  of  the  analysis  of  the  debit  side  of  the  account.  If  the 
result  is  correct,  make  a  summary,  viz: 


HOW    TO    ANALYZE   AN    ACCOUNT 


31 


(Copy  of  Ledger  Account) 


110 


Express, 

Cartage  and  Freight 

1890 

1890 

Jan. 

10 

Cartage 

71 

14  20 

Jan. 

15 

Freight  Rebate 

75 

4 

75 

15 

Freight 

92 

11570 

23 

Allowance  Cartage 

99 

3 

10 

17 
19 

Cartage 

73 

75 

9420 

II 23 

Mch. 

31 

Balance  P.  &  L. 

520 

57 

V 

21 

Expressage 

77 

1 25 

\ 

22 

Cartage 

109 

115 

80 

\ 

31 

Expressage 

79 

2 

25 

\ 

Feb. 

I 
2 

3 
4 
5 
9 
20 

Cartage 
Expressage 

Cartage 

83 
III 

85 
86 

87 
90 

"5 

I 
41 

I 

3 

I 
10 

40 

75 
40 

50 
05 
15 
73 

\ 

Mch. 

10 

" 

119 

4 

75 

\ 

15 

Freight 

95 

104 

71 

\     1 

31 

Expressage 

97 

4 
528 

35 
42 

528 

c 

(Copy  of  Analysis) 
Ledger  4,  page  110  Jones  &  Kilby 

Analysis  of  Express,  Cartagje  and  Freight  Account 

For  the  three  months  ending  March  31,  1890 


Expressage 

Cartage 

Freight 

I. 25 

14.  20 

115.70 

2.2s 

11.23 

94.20 

1 .40 

115.80 

104.71 

.40 

41.75 

1.50 

10.73 

305 

4-75 

115 

4-35 

1535 

198.46 

314.61 

3.10 

4 

75 

1535 

19536 

309 

86 

Freight 

195 

36 

Cartage 

15 

35 

Expressage 

520 

57 

Balance 

32  ACCOUNTING    PRACTICE 

Summary  of  the  Analysis 

DEBITS.  CREDITS.  NET. 

Expressage $15.35  $  $i5-35 

Cartage    198.46  3.10  195-36 

Freight SH-^i  4-75  309.86 

Totals $528.42  $7.85  $520.57 

Always  make  a  summary  of  the  analysis  in  a  prominent  place,  and 
do  not  crowd  it  on  the  analysis  sheet.  If  the  sheet  is  full,  it  is  better 
to  take  another  paper  and  make  the  summary  clear  and  plain,  in  order 
to  avoid  uncertainty  regarding  the  results,  and  endeavor  to  arrange 
the  summary  so  that  it  may  be  comprehended  at  a  glance. 

When  the  analysis  of  an  account  is  completed,  arrange  the  various 
papers  relating  to  same  in  the  manner  that  appeals  to  you  as  being 
most  convenient  for  reference,  always  placing  the  summary  on  the  top. 
Join  the  papers  together  with  a  pin  or  clip  and  file  for  future  reference. 

Improper  Entries 

When  analyzing  an  account,  examine  each  and  every  item  individ- 
ually, refer  to  the  original  entry  and,  if  not  satisfactorily  explained, 
trace  the  matter  out  until  you  are  satisfied  you  have  obtained  all  the 
information  to  be  had.  Never  leave  it  until  you  have  an  intelligent 
understanding  of  the  item  in  question. 

If  the  item  is  such  that,  in  your  judgment,  it  is  not  a  proper  charge 
to  the  account  you  are  analyzing,  make  a  memorandum  of  the  item 
on  your  analysis  sheet,  and  on  another  paper  make  an  exact  copy  of 
the  original  entry,  and  all  the  entries  relating  to  it.  Be  sure  to  note 
the  book  and  folio  of  each  item,  and,  while  the  matter  is  fresh  in 
your  mind,  write  a  synopsis  of  the  facts  of  the  case. 

Adjustments 

Cash  Book  2/751.     R.  Graham.     Bay  Gelding $100.00 

Charged    against    Expense    Account,    should    have   been   charged 
against  "Horses  and  Trucks." 

Cash  Book  3/57.     Walker  &  Co.     Light  Wagon 300 . 00 

Charged  against    Expense   Account,    should   have   been   charged 
against  "Horses  and  Trucks." 

Cash  Book  3/191.     Brooklyn  Furniture  Company  Cabinet 322. 50 

Charged   against    Expense   Account,    should   have   been   charged 

against  "Furniture  and  Fixtures."  

Total  as  per  Summary  of  Analysis  Sheets     $722  .  50 


HOW    TO    ANALYZE    AN    ACCOUNT 


33 


Headings  for  the  Columns  of  the  Analysis  Sheet 

If  you  know  the  composition  of  an  account,  as  shown  on  the  illus- 
tration, (in  which  case  you  know  the  account  was  composed  of  ex- 
pressage,  cartage  and  freight),  you  have  a  definite  analysis  in  view 
and  simply  head  the  columns  of  the  analysis  sheet  to  meet  your  re- 
quirements; but  if  the  account  reveals  nothing  to  guide  you  in  choos- 
ing the  headings  for  your  analysis  sheet,  proceed  with  the  work,  and 
the  headings  will  develop  as  the  work  progresses.  By  that  I  mean: 
If  the  first  item  is  expressage,  head  a  column  "  Expressage  " ;  if  the 
next  is  freight,  head  a  column  "  Freight,"  and  so  continue ;  then  if 
you  are  producing  too  many  headings,  group  the  unimportant  head- 
ings. 

Be  judicious  in  providing  headings,  for  an  extended  analysis  often 
deprives  the  result  of  its  best  value.  No  set  rule  can  be  given,  there- 
fore you  must  consider  the  circumstances  and  be  guided  by  your  own 
judgment. 

Analyzing  Extensive  Accounts 

When  an  account  is  extensive,  it  is  better  to  analyze  it  in  sections 
and  make  a  summary  of  the  sections. 

Summary  of  Several  Analysis  Sheets 


Sheet 
No. 

Total 

Expenses 

Supplies 

Rent 

Travelinj? 
Expenses 

Adjust- 
ments 

I 
2 
3 

2232.35 
2445.20 
2466.40 

I171.20 
1280.60 
1371-50 

471.15 

504.10 
217.24 

150.00 
210.00 
150.00 

340 . 00 
150.50 
405.16 

100.00 
300.00 
322.50 

714395 

3823.30 

1192.49 

510.00 

895.66 

722.50 

Salary  and  Wages 

In  making  an  analysis  of  the  salary  and  wages  account,  analyze 
the  salaries  first,  putting  pay-roll  items  in  one  column,  and,  after 
proving  the  analysis,  proceed  to  analyze  the  pay-roll  column  accord- 
ing to  departments,  which,  if  correct,  will  agree  with  the  column  pro- 
vided for  the  pay-roll  on  the  original  analysis  of  the  salary  and  wages 
account. 


34  ACCOUNTING    PRACTICE 

If  it  is  possible  to  discriminate  between  productive  and  non-produc- 
tive labor,  show  the  amount  of  each  in  the  various  departments. 

The  Comprehensive  Analysis  of  an  Account  for  Legal  Accounting 

In  analyzing  accounts  preparatory  to  making  a  report  which  is 
likely  to  be  examined  in  court,  it  is  advisable  to  compile  your  analysis 
so  that  you  know  definitely  the  source  of  your  information;  this 
necessitates  preparing  the  working  papers  so  that  reference  can  be 
made  to  the  original  entry  of  each  item.  If  there  is  anything  confus- 
ing when  being  cross-examined,  it  is  the  inability  of  the  witness  to 
state  quickly  the  source  of  the  information  and  the  reasons  for  the 
deductions,  consequently  it  is  necessary  to  prepare  the  analysis  sheets 
on  a  more  elaborate  plan  than  is  generally  adopted  by  auditors. 

The  expense  account  conveys  a  fair  idea  of  the  average  account. 
The  first  item  of  the  account  is  $11.75  >  the  particulars  entered  by  the 
bookkeeper  being  "  Sundries  "  you  find  it  necessary  to  refer  to  the 
folio  given,  of  the  cash  book;  upon  examination,  you  find  the  desired 
page  to  have  been  in  Cash  book  No.  3,  and  the  details  entered  there 
^'  Expense  Account,  Brooklyn  Gas  Company,  $11.75."  This  item  is  one 
of  many  for  which  you  have  seen  the  vouchers  and,  being  an  expendi- 
ture for  light,  it  should  be  entered  in  the  column  provided  for  "  Heat, 
Light  and  Power  "  in  the  manner  shown  on  the  analysis  sheet. 

If,  for  any  reason,  the  date  is  an  important  consideration,  enter 
the  date  of  each  item  on  the  analysis  sheet  in  addition  to  the  above. 

In  making  a  comprehensive  analysis  of  an  account,  give  a  synopsis 
of  each  item,  and  the  book  and  folio  of  the  original  entry.  Then,  if 
you  are  called  upon  to  state  the  composition  of  any  part  of  the  report, 
by  referring  to  your  working  papers  you  can  give  a  definite  idea  of 
what  the  item  is  for  and  refer  your  inquisitor  to  the  original  entry  of 
each  item. 

In  the  lower  left  hand  corner  of  the  analysis  is  a  memorandum 
of  the  footings  of  the  account,  showing  the  amount  deducted  for  prior 
account,  which  proves  the  analysis.  Never  neglect  to  make  this  a 
part  of  your  analysis  sheet,  and  never  check  it  off  as  correct  until  you 
are  absolutely  certain  that  it  is  correct. 

Use  the  double  check  mark  as  a  means  of  identifying  the  items 
which  you  used  to  check  each  other. 


HOW    TO   ANALYZE   AN    ACCOUNT 


35 


Expense  Account 

J 

LO 

kJ 

1890 

~~ 

^^_ 

'~' 

June 

5 

Brought  forward 
Sundries 

119 

907 
II 

60 

75 

7 

102 

500 

00 

9 

121 

"5 

80 

10 

104 

1500 

00 

" 

162 

210 

50 

15 

171 

lOI 

50 

17 

104 

91 

17 

21 

"7 

50 

25 

119 

72 

18 

30 

IIS 

81 

52 

30 

119 

no 

22 

3752 

24 

Ledger  3,  folio  183  Jones  &  Walker  Co. 

Comprehensive  Analysis  of  the  Expense  Account 

For  the  Month  of  June,  1890 


Heat,  Light  &  Power 

Rent 

Expenses 

^^^Bklyn.  GasCo. 

"75 

^^  Store  Rent  June 
102                       •' 

500.00 

7^  Moving 

101 .50 

^^^N.Y.SteamCo. 
121 

II 5 . 80 

^^^  Warehouse  Rent 
June,  July,  Aug. 

1500.00 

^^  Stationery 

91.17 

^^^EdisonElec.Co. 
162 

210.50 

^^5  Yard  Rent  June 
117                      •' 

50.00 

^^  s  Sundries 
119 

72.18 

^^  5  Cons.  Gas  Co. 

IIS 

81.52 

^^  Edison  Elec.  Co. 
119 

no.  22 

529.79 

2050.00 

Expenses 

Rent 

Heat  L.  &  P. 

264.85 

2050.00 

529.79 

Footings     3752.24 
907.60 

2844.64 

2844.64 

36 


ACCOUNTING    PRACTICE 


Be  deliberate  and  positive  in  whatever  you  do.  Use  the  double 
check  mark  only  to  indicate  that  the  result  checked  is  indisputably 
correct,  and  never  use  it  excepting  to  check  such  results;  then,  if  an 
error  develops  in  the  work,  you  will  save  yourself  considerable  work 
and  annoyance. 

Adjustment  Entries 

If  you  discover  items  which  do  not  belong  in  the  account,  make 
up  the  summary  of  the  analysis,  showing  first  the  balance  as  it  would 
have  been  if  the  item  in  question  had  not  been  posted  to  the  account, 
and  then  add  to  the  correct  balance  each  item  to  be  eliminated,  with 
full  details,  so  that  balance  of  the  analysis  sheet  will  agree  with  the 
balance  of  the  ledger  account  as  it  stands  on  the  book. 


Summary  of  Analysis  of  Traveling  Expense  Account 

(Showing  item  of  salary  which  requires  adjusting  entry) 


Debits 

Credits 

Net 

TraveUng  Salesmen 

Officers  and  Directors 

11,140.00 

570-15 

5137 

916. 50 

5-25 

10,223  .50 

564.90 

5137 

Allowance  to  Buyers 

Jl.  5/175  R.  B.  Cliff  Salary  for  Jun 

11,761.52 
e,  1890 

921.75 

10,839.77 
100.00 

Balance  of  Traveling  Expense  Acc( 

Dunt 

10. 939-77 

How  to  Analyze  a  Summary  Account 

A  very  satisfactory  way  of  analyzing  a  summary  account  is  to 
take  a  piece  of  analysis  paper  and  enter  the  items  of  the  account  in  the 
first  column,  then  head  the  next  succeeding  columns  to  meet  the  re- 
quirements. Examine  each  item  individually  and  enter  the  analysis 
of  it  opposite  the  item  by  distributing  the  analysis  in  the  succeeding 
columns  on  the  same  line  the  item  appears. 


IV.    A  FINANCIAL  AUDIT 

A  financial  audit  is  an  audit  made  in  the  interest  of  a  fiscal  agent 
or  of  a  prospective  purchaser  of  the  business. 

It  seldom  comprises  a  complete  audit  in  detail,  because  the  client, 
as  a  rule,  prefers  to  waive  the  examination  of  the  sales  and  purchase 
in  detail,  being  satisfied  to  accept  the  sales  and  purchase  records,  pro- 
vided a  superficial  examination  satisfies  the  auditor  that  they  are 
legitimate. 

When  the  auditor  enters  upon  such  an  audit,  he  should  test  the 
sales  about  the  end  of  the  period  and,  by  checking  important  items 
with  the  shipping  records,  endeavor  to  ascertain  whether  the  sales 
are  legitimate.  The  footings  and  postings  of  the  sales  totals  should 
be  verified. 

The  purchases  should  be  examined  to  see  if  the  invoices  were 
entered  promptly,  and  a  falling  off  at  the  end  of  the  period  or  neglect 
to  enter  invoices  should  be  regarded  suspiciously.  The  footings  and 
postings  of  the  totals  of  the  purchases  should  be  verified. 

Plan  of  Financial  Audit 

1.  Audit  the  cash  in  detail. 

2.  Make  trial  balances  for  the  beginning  and  end  of  the  period 
examined. 

3.  Make  a  condensed  trial  balance  for  the  end  of  the  period. 

4.  Analyze  the  accounts  of  the  condensed  trial  balance  for  the  end 
of  the  period. 

5.  Make  a  complete  copy  of  each  and  every  real  account. 

6.  Make  a  balance  sheet  for  the  end  of  the  period  and  verify  the 
items. 

7.  Make  copies  of  the  profit  and  loss  account,  surplus,  re- 
serves, etc. 

8.  Make  schedules  of  notes  and  accounts. 

37 


38  ACCOUNTING    PRACTICE 

9.  Foot  sales  and  purchases. 

10.  Make  copies  of  all  journal  entries  relating  to  capitalization, 
stocks,  bonds,  etc. 

11.  Summarize  the  books  of  original  entry. 

12.  Make  a  superficial  examination  of  all  books  not  examined  in 
detail. 

If  possible,  the  postings  of  the  cash  to  the  sales  and  purchase 
ledgers  should  be  checked,  and  the  items  in  the  credit  journals  should 
be  verified  and  checlced. 

1.  Make  a  complete  audit  of  the  cash  in  detail  as  instructed  in  the 
previous  chapters.  Satisfy  yourself  that  it  is  correct  and  in  order, 
before  proceeding  with  the  audit. 

In  some  cases  an  examination  of  the  cash  is  waived  by  the  client. 
If  that  is  the  case,  qualify  your  report  to  that  effect. 

2.  Make  a  copy  of  the  trial  balances  for  the  beginning  and  end  of 
the  period,  and  verify  the  balances  by  comparison  with  the  ledger 
accounts. 

3.  Make  a  condensed  trial  balance  for  the  end  of  the  period. — A 
condensed  trial  balance  is  composed  of  only  the  general  accounts. 
The  equilibrium  is  established  by  adding  to  the  debits  the  total  of  the 
personal  account  debits  as  accounts  receivable,  and  adding  to  the 
credits  the  total  of  the  personal  account  credits  as  accounts  payable. 
(See  Report  Form  No.  46.) 

When  preparing  a  condensed  trial  balance,  it  is  always  advisable 
to  discriminate  between  sales  accounts,  purchase  accounts,  accounts 
with  individuals,  accounts  with  stockholders,  and  accounts  with  em- 
ployees, by  carrying  the  amount  of  each  short. 

When  preparing  a  condensed  trial  balance,  it  is  essential  that  you 
copy  the  names  of  the  accounts  exactly  as  they  appear  on  the  books, 
and,  if  a  name  is  ambiguous  or  uncertain,  make  suitable  notes  on  your 
working  papers  to  enlighten  you  regarding  the  true  character  of  the 
account. 

4.  Analyze  accounts  composing  the  condensed  trial  balance  to  de- 
termine the  composition  of  each  and  every  account.  A  summary 
should  be  made  of  the  analysis  of  each  account  and  the  balance  should 
agree  with  the  balance  shown  on  the  condensed  trial  balance. 

When  analyzing  the  accounts  of  profit  and  loss,  and  all  accounts 


A   FINANCIAL   AUDIT  39 

associated  with  it,  be  very  careful  that  you  prepare  the  analysis  sheets 
so  that  you  have  an  intelligent  understanding  of  each  and  every  item. 
The  object  of  this  is  to  enable  you  to  prepare  statements  setting  forth 
the  results  of  the  business,  to  do  which,  you  must  be  able  to  state 
(by  referring  to  your  working  papers)  what  the  items  are  and  your 
reasons  for  setting  up  the  statement  as  you  do. 

Comparative  Condensed  Trial  Balance 

Another  method  of  analyzing  the  accounts  is  to  make  a  compara- 
tive condensed  trial  balance  of  the  trial  balances  for  the  beginning 
and  end  of  the  period ;  then  to  extend  the  diflferences,  debit  and 
credit,  in  the  next  succeeding  columns,  and  analyze  the  differences. 
The  advantage  of  operating  in  this  method  is,  that  it  shows  clearly 
all  changes  which  have  occurred  during  the  period  examined. 

After  making  the  comparative  trial  balance,  showing  the  differ- 
ences in  the  accounts  which  are  the  results  of  the  entries  made  during 
the  period,  analyze  eadh  account  to  determine  the  composition  of  the 
entries  made  during  the  period,  and  compile  the  summary  of  the 
analysis  of  each  and  every  account,  so  that  the  result  of  the  analysis 
of  each  account  will  agree  with  the  difference  shown  on  the  compara- 
tive trial  balance. 

Interest  and  Discount 

When  analyzing  interest  and  discount,  if  possible  show  the  earn- 
ings and  expenses,  discriminating  between  interest  on  notes,  loans, 
accounts,  bonds,  and  discount  on  accounts  receivable  and  payable. 

Dividends 

Examine  carefully  all  dividends  and  ascertain  whether  they  were 
properly  authorized  by  the  board  of  directors.  Dividends  should  be 
paid  only  from  earnings  from  operation  and  if  not  earned  the  fact 
should  be  reported.  Dividends  are  paid  from  surplus  and  are  proper 
charges  reducing  surplus  account. 

5.  Make  a  copy  of  each  and  every  real  account. — Real  accounts 
are  plant  and  equipment,  machinery,  realty,  stocks,  bonds,  etc.  This 
is  simply  for  reference  and  record. 


40  ACCOUNTING    PRACTICE 

6.  Make  a  balance  sheet  for  the  end  of  the  period  and  verify  the 
items. 

(a)  When  verifying  the  accounts  receivable,  check  the  trial  bal- 
ance with  the  ledger  accounts  and  make  a  schedule  of  them.  In 
making  a  schedule  of  the  accounts  receivable,  the  items  may  be  classi- 
fied as  good,  questionable  and  bad;  or  they  may  be  classified  as  cur- 
rent accounts  and  past  due  accounts. 

When  preparing  a  statement  classifying  the  items  as  mentioned 
above,  use  extreme  care  so  as  to  avoid  criticism. 

If  the  accounts  are  to  be  certified,  a  copy  of  each  account  should 
be  sent  out  with  a  return  slip  and  a  request  that  the  account  be  com- 
pared and,  if  correct,  advice  to  be  forwarded  on  the  return  slip,  in  an 
inclosed  stamped  envelope  bearing  the  address  of  the  auditor. 

(b)  When  verifying  hills  receivable,  insist  upon  seeing  the  notes. 
Examine  the  notes  and  make  a  complete  schedule  showing  the  details 
of  the  notes :  maker,  payee,  endorsers,  date  executed,  date  due,  where 
payable,  amount,  etc. 

If  bills  receivable,  which  were  discounted,  have  not  matured,  a 
schedule  should  be  made  of  them  and  the  total  set  up  as  a  contingent 
liability,  when  preparing  the  balance  sheet. 

If  notes  are  secured,  make  a  careful  record  of  the  security,  and 
require  some  evidence  that  the  security  is  actually  placed  with  the 
notes  if  they  were  negotiated. 

(c)  When  verifying  stocks,  insist  upon  seeing  the  certificates 
and  make  a  schedule  of  them,  showing  the  number  of  the  certificates, 
the  number  of  shares,  the  name  of  the  company,  the  name  in  which 
they  are  registered,  whether  common  or  preferred,  the  total  issue, 
whether  full  paid  and  nonassessable,  and  all  important  data. 

(d)  When  verifying  bonds,  insist  upon  seeing  the  securities,  ex- 
amine them  carefully,  and  make  a  schedule  showing  the  numbers 
of  the  bonds,  the  name  of  the  company,  the  character  of  the 
bonds,  the  denomination,  the  name  in  which  they  are  registered  (if 
coupon,  make  a  record  of  the  coupons  attached),  the  amount  pay- 
able on  each  coupon,  the  interest  rate,  the  interest  dates,  the  term  of 
the  bond,  the  date  of  maturity,  and  all  information  regarding  them. 

(e)  When  verifying  cash,  count  the  cash  on  hand  and  request 
the  firm  to  obtain  a  certificate   from   the  bank   stating  the  balance 


A    FINANCIAL    AUDIT  41 

which  is  on  hand  at  the  time.  If  the  cash  is  to  be  verified  as  at  a 
past  date,  examine  the  cash  carefully  and  ascertain  just  what  became 
of  the  cash  which  was  purported  to  be  on  hand  at  the  time  specified. 

(f)  When  verifying  property,  require  the  deeds  of  the  property, 
and,  if  you  do  not  look  up  the  official  records  to  see  that  the  deeds 
are  properly  registered,  state  the  fact  in  your  report.  Make  a  schedule 
of  the  properties,  giving  location,  measurements,  tax  assessed  valua- 
tions, book  valuations,  purchase  valuations,  and  all  information  obtain- 
able which  may  be  valuable  or  desirable. 

(g)  When  verifying  unexpired  insurance,  make  a  schedule  of  the 
policies,  giving  a  complete  description  of  them,  showing  the  name  of 
the  insurance  company,  the  name  of  the  party  to  whom  the  policy  is 
issued,  the  property  insured,  the  amount  of  the  insurance,  the  rate, 
the  premium,  the  term  of  the  policy,  the  date  the  policy  expires,  and 
the  address  of  the  agent  with  whom  the  insurance  was  placed.  Show 
the  unexpired  term  and  extend  the  unexpired  portion  of  the  premium 
out  in  the  column  to  be  added. 

(h)  When  verifying  unearned  discount  on  notes  which  were  dis- 
counted, make  a  schedule  of  the  bills  payable,  showing  the  date  dis- 
counted, the  face  of  the  note,  the  payee,  the  name  of  the  party  who 
discounted  the  note,  the  amount  of  the  discount,  the  life  of  the  note, 
the  unexpired  period,  and  extend  the  unearned  portion  of  the  discount 
out  in  the  column  to  be  added. 

(i)  When  verifying  inventories,  make  an  examination  of  the  in- 
ventories, check  the  footings  and  the  extensions,  make  tests  by  com- 
paring the  prices  with  the  sales  and  purchase  to  determine  whether 
they  are  excessive  or  conservative.  It  is  always  advisable  to  specify 
in  the  report  that  "  no  responsibility  is  assumed  for  quantities  and 
prices,"  nevertheless  no  effort  should  be  spared  to  verify  same. 

(j)  When  verifying  bills  payable,  examine  the  cash  and  ledgers 
to  determine  whether  the  value  was  actually  absorbed  by  the  business 
and  that  they  are  a  true  liability  of  the  business. 

Make  a  list  of  the  notes  and,  if  secured,  verify  the  collateral  and 
make  a  careful  memorandum  of  all  the  details  of  the  collateral. 

(k)  When  verifying  accounts  payable,  examine  the  ledgers  and 
endeavor  to  ascertain  whether  all  the  accounts  are  entered  in  the 
books,  by  examining  and  comparing  the  statements  which  were  re- 


42 


ACCOUNTING    PRACTICE 


ceived.  In  some  cases  the  creditors  are  requested  to  mail  statements 
of  their  accounts  and  these  are  compared.  A  schedule  should  be 
made  of  them,  showing  the  important  detail.  In  examining  the  ac- 
counts, satisfy  yourself  that  the  items  are  a  proper  liability  of  the 
company  for  value  absorbed  by  the  business.  Be  very  particular 
regarding  accounts  with  officers,  stockholders  or  interested  parties; 
make  true  copies  of  these  accounts. 

(1)  When  verifying  loans,  examine  the  original  entry  of  each,  and 
see  that  the  value  was  actually  absorbed  by  the  business.  Make  a 
schedule  of  the  loans,  giving  the  names  of  the  parties,  the  amount,  the 
conditions  of  the  loans,  whether  interest-bearing,  and  all  other  impor- 
tant information. 

(m)  When  verifying  a  surplus  account,  examine  the  books  and 
satisfy  yourself  the  surplus  was  earned;  if  it  was  not  make  a  care- 
ful record  of  how  the  surplus  was  created. 

(n)  When  verifying  capital  stock,  examine  the  entries  for  the 
original  issue  and  see  if  the  stock  was  issued  for  value,  as  dividends, 
water,  or  under  what  conditions  it  was  issued.  Make  a  complete  rec- 
ord of  the  stock  authorized  and  issued. 

(o)  When  verifying  bonds,  see  that  the  bonds  were  issued  origi- 
nally for  cash ;  if  they  were  not  get  full  details  regarding  the  issue. 
Make  a  complete  record  of  the  bonds  issued  and  the  bonds  author- 
ized, the  term  of  the  bonds,  the  date  of  maturity,  the  trustees,  the 
character  of  the  bonds,  the  interest  dates,  the  denominations,  and  all 
information  available. 

(p)  When  verifying  certificates  of  indebtedness,  examine  carefully 
the  original  issue  and  make  a  schedule  showing  the  character  of  the 
issue,  the  conditions,  the  names  of  the  parties  to  whom  they  were 
issued,  the  amount,  the  denomination,  and  all  available  information 
regarding  them. 

7.  Make  a  copy  of  the  profit  and  loss  accounts,  surplus,  reserves, 
etc.' — It  is  also  advisable  to  make  an  exact  copy  of  the  closing  entries, 
when  the  closings  are  made  by  journal  entry. 

8.  Make  schedules  of  the  notes  and  accounts. — This  is  generally 
done  when  verifying  the  assets.  When  making  the  schedules,  arrange 
them  in  the  form  they  are  to  be  set  up  in  the  report.  This  will  obviate 
the  necessity  of  copying  the  schedule  when  preparing  the  report. 


A    FINANCIAL   AUDIT  43 

9.  Foot  the  sales  and  purchases. — This  should  be  done  and,  when 
doing  it,  make  an  examination  of  the  sales.  Make  test  examinations 
by  verifying  the  sales  with  the  record  of  shipments.  If  stock  books 
are  kept,  verify  the  sales  by  the  stock  records.  By  testing  is  meant  to 
pick  out  items  here  and  there  and  verify  them. 

10.  Make  copies  of  all  journal  entries  relating  to  capitalization, 
and  examine  the  minutes  to  determine  whether  the  entries  are  in 
accord  with  them.  Copies  should  also  be  made  of  the  minutes  author- 
izing the  entries. 

11.  Summarize  the  books  of  original  entry. — It  is  not  absolutely 
necessary  to  do  this,  but  the  author  finds  it  very  desirable.  To  sum- 
marise the  books  is  to  make  a  summary  of  each  book,  so  that  you  have 
one  entry  for  the  whole  period  instead  of  an  entry  for  each  month. 

12.  Make  a  superficial  examination  of  all  the  books  not  examined 
in  detail. — When  doing  this  examine  the  journal  very  carefully  and 
scrutinize  every  entry.  Make  a  copy  of  every  entry  which  is  question- 
able. 

In  general,  when  making  an  audit  to  secure  information  for  a 
prospective  purchaser,  if  for  the  whole  or  a  part  interest  in  the  com- 
pany, make  a  list  of  the  parties  interested  in  the  business,  and  be 
very  particular  regarding  the  general  conditions  of  the  business.  If 
certain  interested  parties,  or  associate  companies,  are  the  heaviest 
customers,  give  full  details  regarding  their  accounts  and  full  infor- 
mation regarding  their  relations  with  the  business.  If  interested  par- 
ties are  interested  in  such  a  way  that  the  withdrawal  of  their  sup- 
port would  embarrass  the  business,  be  sure  to  get  the  full  details  and 
report  them. 


V.    THE  FIRST  AUDIT  OF  A  NEW 
CORPORATION 

When  making  an  audit  of  a  new  corporation  or  consolidation,  a 
careful  record  should  be  made  of  the  details  of  the  organization  and 
capitalization. 

Vendor's  Agreements 

Examine  the  vendor's  agreements  and  make  a  synopsis  of  them. 
Verify  the  payments  made  to  vendors  and  make  a  summary  showing 
when  and  how  paid,  whether  in  cash,  stock  or  bonds,  and  the  amount 
of  each.  Make  a  copy  of  the  minutes  of  the  meetings  of  directors, 
officers  and  stockholders,  authorizing  and  approving  the  agreements. 

Promoter's  and  Preliminary  Expenses 

Examine  the  entries  for  promoter's  and  preliminary  expenses  and 
make  a  summary  of  them.  Inquire  whether  they  have  all  been  paid 
and,  if  not,  obtain  full  details  of  the  obligations. 

Capital  Stock 

Make  notes  of  the  capital  stock  authorized,  its  character,  the  num- 
ber of  shares,  and  the  par  value. 

What  stock  has  been  issued,  and  for  what? 

Examine  carefully  all  entries  in  the  books  for  capital  issued,  and 
see  whether  the  value  was  actually  paid  in. 

Bonds 

What  bonds  were  authorized  and  issued,  and  for  what  issued? 

In  preparing  notes  relating  to  bonds,  make  a  record  of  the  amount 
subscribed,  the  amount  issued,  the  amount  paid  to  date,  the  trustees, 
the  date  of  execution  and  authorization,  the  denominations,  the  rate 

44 


FIRST    AUDIT    OF    A    NEW    CORPORATION  45 

of  interest,  the  dates  interest  is  payable,  whether  coupon  or  otherwise, 
the  date  of  maturity  and  the  character  of  the  bonds. 

Make  a  careful  copy  of  all  minutes  bearing  on  the  issue  and 
specify  whether  the  minutes  are  of  directors'  meetings,  executive 
board  meetings,  or  stockholders'  meetings,  giving  the  date  and  place 
of  meeting. 

If  commission  was  paid  or  allowed  for  placing  the  stock  and 
bonds,  obtain  full  details  regarding  same,  especially  to  whom  paid, 
and  how\ 


VI.    MAKING  ADJUSTMENTS  TO  A 
LEDGER 

Never  make  adjustments  to  a  ledger  during  the  progress  of  an 
audit.  Make  a  schedule  of  all  adjustments,  debits  and  credits,  on  a 
sheet  used  only  for  that  purpose. 

Copy  the  trial  balance  on  a  sheet  of  analysis  paper  with  at  least 
six  columns.  Head  the  first  two  columns  for  the  debits  and  credits 
of  the  trial  balance;  head  the  next  two  columns  for  the  adjustments, 
debits  and  credits;  and  head  the  next  two  columns  for  the  final 
adjusted  trial  balance,  debits  and  credits. 

For  every  lot  of  adjustments  use  a  set  of  columns  debit  and  credit. 
Post  the  adjustments  to  the  sheet  in  the  columns  for  the  adjustments 
and  foot  the  columns  of  adjustments  to  prove  the  postings.  When 
the  adjustments  are  posted  to  the  sheet,  compute  the  net  result  of 
each  account  and  extend  the  adjusted  balance  in  the  columns  for  the 
adjusted  trial  balance.  If  the  work  has  been  done  correctly  the  final 
trial  balance  will  be  correct;  if  not,  the  difference  can  be  located  by 
proving  the  work,  sheet  by  sheet,  or  by  accounts. 

Another  method  of  making  adjustments  is  to  take  a  large  sheet 
of  analysis  paper  and  open  an  account  for  each  item  of  the  trial 
balance  on  the  analysis  sheet.  A  twenty-four  column  analysis  sheet 
with  fifty  lines  will  be  sufficient  for  ninety-six  accounts. 

After  preparing  the  analysis  sheet  and  posting  the  trial  balance 
to  the  analysis  sheet  with  red  ink,  prove  the  sheet  by  making  footings 
of  the  columns  and  verifying  the  totals  with  the  total  of  the  trial 
balance. 

Post  the  adjustments  to  the  accounts  on  the  analysis  sheet  with 
black  ink;  foot  the  accounts  on  the  analysis  sheet  and  prove  the 
balance. 

Make  an  adjusted  trial  balance  from  the  analysis  sheet. 

46 


\  MAKING   ADJUSTMENTS    TO   A    LEDGER  47 

In  making  adjustments  to  a  ledger  (especially  where  there  are  a 
large  number  of  adjustments),  never  commence  by  making  indis- 
criminate changes  in  the  accounts,  but  do  it  in  a  systematic  manner. 

The  above  mentioned  methods  insure  accuracy  and  provide  a  rec- 
ord of  all  adjustments  made. 


VII.     PREPARATION   OF  THE   REPORT 

As  the  audit  progresses,  any  matter  which  you  deem  it  expedient 
to  embody  in  your  report  should  be  written  up  immediately,  while 
the  matter  is  fresh  in  your  mind.  Use  a  separate  piece  of  paper  in 
doing  this,  exercising  great  care  in  the  composition  and  arrange- 
ment of  the  facts.  Confine  yourself  entirely  to  a  statement  of  the 
facts;  giving  all  the  details,  especially  where  the  matter  appears  in 
the  books.  State  the  names  of  the  books  as  they  are  commonly 
known  and  the  folios  upon  which  the  matter  appears.  Be  very 
careful  in  the  preparation  of  such  material  and  especially  in  quoting 
books  and  folios.  Never,  never  make  suppositions  or  take  anything 
for  granted. 

Do  not  venture  opinions  unless  requested  to  do  so  and  then  men- 
tion the  request.  The  business  of  an  auditor  is  to  state  facts,  and 
any  evidence  of  prejudice  or  bias  in  the  text  of  a  report  destroys  the 
value  of  the  report. 

If  you  prepare  (on  separate  pieces  of  paper)  the  matters  which 
you  intend  to  embody  in  your  report,  as  part  of  the  text  of  the  report, 
you  can  eliminate  what  your  examination  proves  to  be  superfluous; 
and,  when  you  have  completed  the  audit  and  finally  prepare  the 
report,  it  will  not  be  necessary  to  copy  the  matter  (and  thus  risk 
errors  in  facts  and  figures).  The  preparation  of  the  report  will 
simply  be  a  matter  of  arranging  the  sheets  in  the  order  you  wish  the 
facts  to  appear  in  the  text  of  the  report.  Have  the  report  copied 
from  the  working  papers  which  were  prepared  when  your  mind  was 
devoted  exclusively  to  the  matter. 

If  you  simply  make  notes  during  the  progress  of  the  audit,  and 
the  notes  are  brief,  it  may  be  difficult  and  sometimes  impossible,  when 
preparing  your  report,  to  compose  the  matter  so  as  to  express  what 
you  desire  in  the  way  you  would  report  it;  because  your  mind  is  not 
confined  entirely  to  the  consideration  of  the  subject  in  question.     If 

48 


\  PREPARATION    OF    THE    REPORT  49 

you  prepare  the  notes  in  form  suitable  for  embodying  in  the  text  of 
the  report,  when  you  prepare  the  final  text  for  the  report,  your  ener- 
gies will  not  be  absorbed  by  the  composition,  but  can  be  devoted  to 
reviewing  the  subjects  and  thus  secure  better  results. 

Then  again,  if  you  only  make  brief  notes  during  the  progress  of 
the  audit  and  return  to  the  office  to  prepare  the  text  of  the  report, 
you  may  find  you  have  neglected  to  secure  some  data  which  is  vitally 
important  to  your  report. 

Therefore,  prepare  each  matter  in  form  suitable  for  embodying 
in  the  report  and  check  up  very  carefully  all  the  figures,  folios,  quota- 
tions, etc.  Be  absolutely  certain  that  they  are  correct.  Remember, 
your  report  is  the  most  important  feature  and  may  be  subjected  to 
unfriendly  examination. 

Do  not  generalize;  be  specific  and  definite  in  your  report,  con- 
fining yourself  to  facts. 

If  you  have  nothing  to  report,  do  not  compose  a  lot  of  elaborate 
matter  simply  to  show  oflf  your  composition.  If  you  find  nothing  in 
particular  that  commends  itself  to  you  as  worthy  of  consideration, 
do  not  attempt  to  create  something. 

Never  use  invective  language  or  names  derogatory  to  the  repu- 
tations of  others;  leave  it  to  the  proper  authorities  to  convict;  your 
business  is  to  show  facts  and  not  pass  judgment. 

The  text  of  the  report  should  deal  first  with  the  instructions  and 
the  period ;  a  copy  of  the  instructions  can  be  embodied  in  the  text 
of  the  report  when  desirable.  After  this,  mention  the  exhibits  which 
are  embodied  or  attached  as  part  of  the  report,  the  list  of  exhibits 
being  given  in  order  suitable  for  reference,  and  the  various  matters 
relating  to  the  exhibits  submitted.  Finally  make  general  remarks 
relating  to  the  audit  and  the  certification. 

Report  on  a  Trading  Business 

The  report  on  an  audit  of  a  trading  business  should  embody  the 
following  exhibits : 

Balance  Sheet  for  beginning  of  period. 
Balance  Sheet  for  end  of  period. 
Surplus  Account  for  the  period  (optional). 
Profit  and  Loss  Account  for  the  period, 


50  ACCOUNTING    PRACTICE 

Trading  Account  for  the  period, 
Schedule  of  Bills  Payable  for  the  end  of  the  period, 
Schedule  of  Bills  Receivable  for  the  end  of  the  period, 
Schedule  of  Accounts  Payable  for  the  end  of  the  period,  and 
Schedule  of  Accounts  Receivable  for  the  end  of  the  period. 

If  the  report  is  a  periodical  audit,  the  balance  sheet  for  the  begin- 
ning of  the  period  should  be  omitted. 

If  the  surplus  account  consists  of  only  a  few  items,  they  can  be 
shown  on  the  balance  sheet  for  the  end  of  the  period. 

Report  on  a  Manufacturing  Business 

The  report  on  an  audit  of  a  manufacturing  business  should  embody 
the  following  exhibits: 

Balance  Sheet  for  the  beginning  of  the  period, 

Balance  Sheet  for  the  end  of  the  period, 

Surplus  Account  for  the  period   (optional), 

Profit  and  Loss  Account  for  the  period, 

Manufacturing  Account  for  the  period, 

Schedule  of  Bills  Payable  for  the  end  of  the  period, 

Schedule  of  Bills  Receivable  for  the  end  of  the  period, 

Schedule  of  Accounts  Payable  for  the  end  of  the  period,  and 

Schedule  of  Accounts  Receivable  for  the  end  of  the  period. 

Report  on  a  Manufacturing  and  Trading  Business 

The  report  on  an  audit  of  a  manufacturing  and  trading  business 
should  embody  the  following  exhibits: 

Balance  Sheet  for  the  beginning   of   the  period. 

Balance  Sheet  for  the  end  of  the  period, 

Surplus  Account  for  the  period   (optional), 

Profit  and  Loss  Account  for  the  period. 

Trading  Account  for  the  period. 

Manufacturing  Account  for  the  period. 

Schedule  of  Bills  Payable  for  the  end  of  the  period, 

Schedule  of  Bills  Receivable  for  the  end  of  the  period. 

Schedule  of  Accounts  Payable  for  the  end  of  the  period,  and 

Schedule  of  Accounts  Receivable  for  the  end  of  the  period. 


PREPARATION    OF   THE    REPORT  ^j 

The  manufacturing  and  trading  accounts  are  combined  when  it 
is  impractical   or   inconvenient  to   show  them   separately. 

Report  on  the  Books  of  a  Treasurer 

The  report  of  an  audit  of  the  books  of  a  Treasurer  should  embody 
the  following  exhibits: 

Balance  Sheet  for  the  beginning  of  the  period, 

Balance  Sheet  for  the  end  of  the  period, 

Statement  of  Receipts  and  Disbursements, 

Statement  of  Expense  and  Income,  and 

Schedules  of  Securities  and   Properties. 

Report  on  an  Operating  Business 

The  report  of  an  audit  of  an  operating  business  should  embody 
the  following  exhibits: 

Balance  Sheet  for  the  beginning  of  the  period, 
Balance  Sheet  for  the  end  of  the  period, 
Surplus  Account  for  the  period   (optional), 
Profit  and  Loss  Account  for  the  period,  and 
Operating  Account  for  the  period. 

In  General 

Make  it  a  point  to  condense  the  main  exhibits  as  much  as  possible, 
consistent  with  good  form. 

If  an  item  of  the  balance  sheet  is  composed  of  one  or  two  items 
of  detail,  it  is  hardly  necessary  to  make  a  separate  exhibit  of  one 
or  two  items.  Nevertheless,  it  is  always  preferable  to  show  separate 
exhibits,  giving  full  detail  of  such  items  as  bonds,  stocks,  realty,  notes, 
accounts,  loans,  etc. 

When  an  audit  covers  several  fiscal  periods,  the  balance  sheets 
of  intermediate  dates  can  be  embodied  in  the  report  if  desirable,  and 
a  comparative  balance  sheet  can  be  shown. 

Never  omit  the  main  balance  sheet  which  is  being  shown  in  detail 
and  certified,  because  it  is  included  in  a  comparative  statement.  The 
certified  balance  sheet  must  always  be.  set  up  alone,  with  appropriate 
schedules  and  supplementary  statements  must  lead  up  to  the  certified 
balance  sheet. 


52  ACCOUNTING    PRACTICE 

In  preparing  a  report  on  several  plants  operated  together,  it  is 
advisable  to  make  a  report  on  each  individually  and  then  make  a 
consolidated  report  on  the  operation  of  all  plants. 

If  an  audit  is  made  of  several  years  or  fiscal  years,  show  separate 
accounts  for  each  year,  excepting  the  surplus  account  which  may  be 
set  up  to  cover  the  full  period. 

If  a  balance  sheet  is  shown  for  each  intermediate  period,  the  sur- 
plus account  should  be  closed  at  the  end  of  each  period  so  that  the 
surplus  as  at  the  date  of  each  balance  sheet  will  be  evident. 

If  desired,  comparative  statements  can  be  set  up  in  a  report  cover- 
ing several  periods. 

Balance  Sheet 

If  an  audit  is  made  with  a  view  to  determining  the  condition  of 
the  business,  for  stockholders,  or  other  parties  interested  as  investors, 
the  balance  sheet  should  be  set  up  to  show  first  the  fixed  assets  and 
the  fixed  liabilities,  and  after  them  the  current  assets  and  current 
liabilities.     (See  balance  sheet  Report  Form  No.  28.) 

If  the  audit  is  made  for  the  parties  operating  the  business  with  a 
view  to  determining  the  condition  of  the  business  from  an  operating 
standpoint,  the  current  assets  and  current  liabilities  should  be  set  up 
first,  and  the  fixed  assets  and  fixed  liabilities  under  them.  (See  bal- 
ance sheet  Report  Form  No.  20.) 

When  setting  up  a  balance  sheet  showing  the  current  assets  first, 
always  arrange  the  items  so  that  the  quick  assets  will  appear  first, 
^d  set  up  the  assets  not  so  easily  converted  into  cash  according  to 
degree  of  convertibility. 

Form  of  Report 

These  exhibits  we  certify  to  be  correct  statements  of  the  affairs 
of  The  Willis  Hardware  Company  according  to  its  books,  accounts 
and  vouchers. 

Form  of  Report 

These  exhibits  we  certify  to  be  correct  in  accordance  with  the 
books,  accounts,  and  vouchers  of  The  Willis  Hardware  Company  at 
the  close  of  business  on  December  31,  1905. 


PREPARATION    OF   THE    REPORT  53 

Form  of  Report 

We  report  that  we  have  made  an  audit  of  the  books,  accounts,  and 
vouchers  of  The  Willis  Hardware  Company  and  we  havt  verified  the 
balance  sheet  attached  hereto;  same  is  properly  drawn  up  so  as  to 
exhibit  a  true  statement  of  the  condition  of  the  business  on  December 
J 7,  1905 y  as  shown  by  the  books  of  the  company. 


VIII.     LOCATING   DIFFERENCES   IN   THE 

LEDGER 

I.    To  Analyze  a  Ledger 

To  analyze  a  ledger  means  to  go  through  a  ledger  and  analyze  the 
accounts  according  to  the  books  of  original  entry. 

First  check  the  balance  for  the  beginning  of  the  period  to  be 
analyzed,  and  mark  the  ledger  totals  which  make  the  balances  so  that 
you  can  identify  the  totals  at  a  glance. 

If  an  intermediate  period  is  to  be  analyzed,  check  the  balances  for 
the  end  of  the  period  and  mark  the  ledger  totals  which  make  the  bal- 
ance, so  that  they  can  be  identified  at  a  glance.  This  is  done  to  avoid 
error  and  confusion,  which  would  result  from  uncertainty  regarding 
the  postings  which  were  made  to  the  ledger  during  the  period  ex- 
amined. 

Before  commencing  to  analyze  the  ledger,  ascertain  how  many 
books  were  posted  to  the  ledger,  and  make  a  summary  of  the  total 
postings  made  from  each  book ;  e.g. : 

General  Journal $401,605.70 

Purchase  Journal 561,315.90 

.  Sales  Books 906,713.22 

Cash  Receipts 874,392.87 

Cash   Payments 903,998.15 

Total  Debits  and  Credits $3,648,025.84 

Take  a  piece  of  analysis  paper  with  at  least  six  columns  and  head 
the  columns,  as  shown  on  Form  31,  which  provides  a  column  for  the 
total  entries  made  to  that  side  of  the  account  and  a  column  for  the 
postings  of  each  book  of  original  entry. 

Commencing  at  the  beginning  of  the  ledger,  take  each  account 
and  analyze  the  debits  according  to  the  books  of  original  entry. 

54 


LOCATING   DIFFERENCES    IN    THE   LEDGER         55 

Referring  to  the  copy  of  the  account  of  F.  W.  Brown  &  Co., 
Form  32,  you  see  the  account  commenced  with  a  balance  of  $10,701.50. 
This  is  the  balance  marked  as  having  been  checked  according  to  the 
trial  balance  for  the  beginning  of  the  period,  so  is  used  only  to  prove 
the  analysis. 

An  analysis  of  the  postings  made  to  the  debit  side  of  the  account 
reveals  the  following: 

Postings  from  the  sales  books $6649.91 

Postings  from  the  cash  book 19.20 

Postings  from  the  journal 125.00 

Total  postings  during  period $6794.1 1 

Balance  of  account  at  beginning 10,701.50 

Total  footing  of  debits $17,495.61 

The  total  of  the  postings  made  to  the  debit  side  of  the  account 
during  the  period  which  is  being  analyzed  was  $6794.11. 

Refer  to  Form  No.  31 ;  the  total  $6794.11  is  entered  in  the  totals 
column  No.  i  opposite  the  ledger  folio  5  and  the  analysis  of  the  total 
is  entered  as  shown:  $125.00,  having  been  posted  from  the  journal, 
should  be  entered  in  the  column  headed  General  Journal  No.  2 ; 
$6649.91,  having  been  posted  from  the  sales  book,  should  be  entered 
in  the  column  headed  Sales  Book  No.  4;  and  $19.20,  having  been 
posted  from  the  cash  book  for  cash  payments,  should  be  entered  in 
the  column  headed  Payments  No.  6. 

Analyze  the  debits  of  each  account  in  the  order  the  accounts 
appear  in  the  ledger,  and  enter  on  the  analysis  sheet  (Form  31)  the 
result  of  the  analysis. 

After  all  the  accounts  have  been  analyzed,  the  columns  of  the 
analysis  sheet  (Form  31)  should  be  footed.  If  the  work  has  been 
done  correctly: 

The  total  of  the  totals  column  No.  i  will  equal  the  total  debits 
and  credits  as  shown  on  the  summary  of  the  postings  made  from 
books  of  original  entry. 

The  total  of  the  general  journal  column  No.  2  should  equal  the 
total  of  the  postings  made  from  the  journal  or  the  total  of  the  jour- 
nal footings. 


.56  ACCOUNTING    PRACTICE 

The  total  of  the  purchase  journal  column  No.  3  should  equal  the 
total  of  the  postings  made  from  the  purchase  journal. 

The  total  of  the  sales  book  column  No.  4  should  equal  the  total 
of  the  sales  book. 

The  total  of  the  receipts  column  No.  5  should  equal  the  total  cash 
receipts. 

The  total  of  the  payments  column  No.  6  should  equal  the  total 
cash  payments. 

If  the  totals  agree  with  the  summary  of  the  postings  made  from 
books  of  original  entry,  the  work  is  correct  and  in  order. 

After  the  debit  side  of  the  ledger  has  been  analyzed  and  the 
totals  verified,  make  a  similar  analysis  of  the  credit  side  of  the 
ledger. 

Any  difference  existing  on  the  ledger  must  be  limited  to  the  post- 
ings of  a  specific  book;  and  when  it  is  determined  which  set  of  post- 
ings are  wrong,  check  up  the  postings,  unless  the  error  appears  to  be 
peculiar,  such  as  a  transposition  of  figures. 

Transposition  of  Figures 

If  the  difference  is  a  multiple  of  nine,  it  is  generally  a  transposi- 
tion of  figures.  This  is  easily  located  because  the  multiple  limits  the 
error  to  certain  items. 

A  shortage  of  45  must  be  a  transposition  of  50,  61,  'J2,  83,  or  94. 
Naturally,  you  would  glance  over  the  book  of  original  entry  and  check 
the  postings  of  items  having  such  units. 

A  difference  of  nine  is  caused  by  transposing  10,  21,  32,  43,  54, 
65,  76,  87,  or  98. 

A  difference  of  eighteen  is  caused  by  transposing  20,  31,  42,  53, 
64,  75,  86,  or  97. 

A  difference  of  twenty-seven  is  caused  by  transposing  30,  41,  52, 
63,  74,  85,  or  96. 

A  difference  of  thirty-six  is  caused  by  transposing  40,  51,  62,  73, 
84,  or  95. 

A  difference  of  forty-five  is  caused  by  transposing  50,  61,  'J2, 
83,  or  94. 

A  difference  of  fifty- four  is  caused  by  transposing  60,  71,  82, 
or  93. 


LOCATLNG    DIFFERENCES    IN    THE   LEDGER         5^ 

A  diflference  of  sixty-three  is  caused  by  transposing  70,  81,  or  92. 
A  difference  of  seventy-two  is  caused  by  transposing  80  or  91. 
A  difference  of  eighty-one  is  caused  by  transposing  90. 


2.     How  to  Section  a  Ledger 

To  section  a  ledger  is  to  divide  the  ledger  into  sections  of  one 
hundred  pages  and  keep  a  control  of  the  sections  on  separate  sheets. 

To  do  this,  first  analyze  the  trial  balance  for  the  beginning  of  the 
period,  to  determine  the  amount  of  debits  and  credits  of  the  trial 
balance  in  the  various  sections.  All  the  postings  of  the  books  of 
original  entry  are  then  analyzed  according  to  the  sections  of  the 
ledger.  The  results  on  the  analysis  sheets  are  posted  to  control  sheets 
and  the  net  results  are  determined.  After  this  is  done  the  trial  bal- 
ance for  the  end  of  the  period  is  analyzed  and  the  results  on  the 
control  sheets  are  compared  with  the  analysis. 

Outline  of  Method 

(i)  Analyze  the  trial  balance  for  the  beginning  of  the  period,  to 
determine  the  amount  of  ledger  balance  in  each  section. 

(2)  Make  a  control  sheet  for  debits  and  one  for  credits  (see 
Forms  30  A  and  B). 

(3)  Post  the  analysis  of  the  trial  balance  for  the  beginning  of  the 
period  to  the  control  sheet. 

(4)  Analyze  the  debits  and  credits  of  the  postings  from  the  books 
of  original  entry,  and  make  a  summary  of  the  debits  and  credits  of 
each  book  on  summary  sheets. 

(5)  Post  the  results  of  the  summary  sheets  for  books  of  original 
entry  to  the  control  sheets. 

(6)  Carry  the  totals  of  the  debit  sheet  to  the  credit  sheet,  enter- 
ing the  debit  results  under  the  credit  totals;  and  carry  the  totals  of 
the  credit  sheet  to  the  debit  sheet,  entering  the  credit  results  under 
the  debit  totals.  Where  the  upper  amount  is  greater  than  the  lower, 
carry  the  diflference  down.  The  total  of  the  diflferences  carried  down 
on  the  debit  sheet  should  equal  the  total  of  the  diflference  carried 

down  on  the  credit  sheet. 
6 


58  ACCOUNTING    PRACTICE 

Details  of  Method 

(i)  The  most  practical  method  of  analyzing  the  trial  balance  is 
simply  to  foot  the  debits  and  credits  of  each  section  and  make  a  sum- 
mary of  the  results.  If  correct,  the  total  debits  will  equal  the  total 
debits  of  the  trial  balance  and  the  total  credits  will  equal  the  total 
credits  of  the  trial  balance. 

(2)  Study  the  control  sheets,  Forms  30  A  and  B.  Accustom  your- 
self to  the  numbers  o,  i,  2,  3,  4,  5,  6,  etc.,  and  so  divide  the  sections 
that  the  section  numbers  will  be  evident  when  you  see  the  folio  of 
the  ledger.  All  folios  under  100  will  be  classed  number  o,  and  folios 
commencing  with  the  hundred  will  belong  to  the  section  indicated  by 
the  hundred  expressed  in  the  folio  number. 

If  the  ledger  has  500  pages,  divide  it  into  5  sections;  if  it  has 
1500  pages  divide  it  into  15  sections,  and  always  include  the  last  page 
with  the  previous  section,  when  this  page  is  the  beginning  of  a  new 
hundred. 

(3)  Post  the  analysis  of  the  trial  balance  for  the  beginning  of  the 
period  to  the  control  sheet.  Forms  30  A  and  B.  Do  not  change  the 
analysis  after  you  prove  the  analysis  sheet;  enter  the  exact  figures 
on  the  debit  control  sheet,  so  that  the  total  footed  across  the  sheet 
will  equal  the  total  of  the  footing  of  the  debits  on  the  trial  balance. 
Always  prove  the  figures  after  making  postings  to  the  control  sheet. 

(4)  Analyze  the  postings  of  the  books  of  original  entry ;  for  illus- 
tration take  the  journal.  Commence  at  the  beginning  of  the  journal 
entries  for  the  period,  and  take  off  the  ledger  folios  for  as  many 
pages  as  practical.  To  take  off  the  ledger  folios,  an  ordinary  plain 
sheet  can  be  used.  Along  the  top  of  the  sheet  run  the  numbers,  rep- 
resenting the  sections  of  the  ledger  o,  i,  2,  3,  4,  5,  etc.  Take  off  the 
folios  for  the  debits  (only)  and  enter  the  folios  on  the  sheet  under 
the  number  representing  the  section  to  which  they  belong.  After  tak- 
ing off  all  debit  folios,  take  another  sheet  of  paper  and  make  a  proof 
sheet  by  entering  the  folios  on  the  sheet  in  their  numerical  order, 
leaving  a  space  between  the  folios  of  the  sections. 

When  preparing  the  proof  sheets,  make  a  memorandum  on  the 
proof  sheet  of  the  footings  of  the  book  of  original  entry  up  to  date 
and  deduct  the  prior  footing.     The  difference  will  be  the  part  of  the 


LOCATING  DIFFERENCES  IN  THE  LEDGER    59 

book  you  intend  to  prove,  and  the  total  footing  of  the  summary  sheet 
for  that  book  will  always  agree  with  the  proof  sheet. 

After  preparing  this  proof  sheet,  turn  to  the  first  ledger  folio 
appearing  on  the  sheet  and  take  from  the  ledger  the  total  of  the  post- 
ings to  that  page  which  were  made  from  that  part  of  the  journal. 
Turn  to  each  successive  ledger  folio  appearing  on  the  sheet,  and  when 
complete  the  total  of  the  sheet  will  equal  the  journal  postings. 

Next  prepare  a  sheet  for  the  credits  and  prove  the  credit  postings 
made  from  the  journal. 

Analyze  the  sheets,  and  make  a  summary  of  all  the  journal  debit 
sheets  on  a  form  like  No.  30  and  a  summary  of  all  the  credits  sheets. 

Prove  the  posting  of  every  book  of  original  entry  in  this  way. 

When  taking  the  items  from  the  ledger,  make  a  peculiar  mark 
opposite  the  items  to  indicate  the  proof  has  been  taken.  A  common 
method  of  marking  is  to  make  a  heavy  dot  at  the  junction  of  the 
cross  line  and  the  unit  line  farthest  from  the  item. 

When  this  method  is  operated  by  an  auditor  in  charge  of  an 
office,  the  auditor  keeps  the  control  sheets  and  each  bookkeeper  takes 
off  the  proof  sheets  after  posting.  The  proof  sheets  are  delivered  to 
the  auditor,  who  analyzes  the  sheets  by  simply  footing  the  sections 
with  red  ink.  The  red  ink  footings  are  proved  by  comparing  the 
total  with  the  totals  on  the  proof  sheet.  The  auditor  foots  the  control 
sheets  and  tells  the  bookkeepers  where  the  difference  lies  (about), 
without  looking  at  the  ledger. 

After  all  the  books  have  been  posted  to  the  ledger  and  the  proof 
sheets  taken  off,  the  summary  sheets  for  each  book  should  equal  the 
total  postings  from  the  book.  That  is,  the  total  of  the  summary 
sheet  for  the  cash  receipts  should  equal  the  cash  receipts  as  shown  by 
the  cash  book.    The  same  applies  to  the  cash  payments  and  every  book. 

(5)  The  summary  sheets  for  books  of  original  entry  completed, 
post  the  results  to  the  control  sheets,  as  shown  on  Forms  30  A  and  B. 

After  the  proof  figures  on  the  control  sheets  have  been  obtained, 
the  trial  balance  for  end  of  the  period  can  be  footed  according  to 
sections  and  any  difference  confined  to  sections. 

If  care  is  exercised  in  the  various  operations,  it  should  not  take 
long  to  locate  the  trouble. 

Transfers  made  without  journal  entry  must  be  considered,  and, 


6o  ACCOUNTING   PRACTICE 

where  the  system  is  operated,  no  transfers  should  be  made  without 
using  the  journal. 

This  method  has  been  operated  by  some  of  the  largest  companies 
in  New  York  for  over  twenty  years,  and  the  taking  of  the  trial  bal- 
ance is  only  to  verify  the  proof  sheets   (control  sheets). 

3.     How  to  Block  a  Ledger 

To  block  a  ledger  is  to  take  from  the  ledger  the  postings  of  each 
book  of  original  entry  separately,  and  verify  the  postings  by  com- 
parison with  the  summary  of  the  postings  which  is  compiled  from  the 
books  of  original  entry. 

To  illustrate:  Commence  at  the  first  page  of  the  ledger  and  go 
through  the  ledger,  page  by  page,  taking  off  the  journal  debits  for 
the  period  in  question.  After  going  through  the  entire  ledger,  foot 
the  sheet  containing  the  journal  debits  and  compare  the  result  with 
the  total  postings  made  from  the  journal. 

Next  go  through  the  ledger  and  take  off  the  ledger  all  the  journal 
credits  which  are  footed  and  verified.  This  proves  that  the  postings 
are  correct  and  provides  data  necessary  to  prove  the  ledger  as  a  whole. 

Make  a  summary  of  the  monthly  totals  of  each  book  of  original 
entry  for  the  period  to  be  examined.  To  do  this  it  is  necessary  to 
foot  the  journal.  After  making  a  summary  of  each  book,  make  a 
summary  of  all  the  books,  compiling  it  as  follows: 

General  Journal   $194,257.41 

Purchase  Journal  947,608.22 

Purchase  Credit  Journal 9,608.75 

Sales  Book    1,540,602.89 

Sales  Credit  Journal  3i»7i5-63 

Cash  Receipts  1,910,622.70 

Cash  Payments  1,897,322.50 

The  total  amount  of   debit  or  credit  entries.  .$6,531,738.10 

Always  commence  with  the  journal ;  check  out  the  journal  debits 

and  credits,  making  your  check  marks  on  the  ledger  with  blue  pencil. 

It  is  always  advisable  to  check  the  journal,  because  the  number 


LOCATING    DIFFERENCES    IN    THE   LEDGER         6i 

of  entries  is  generally  small  and  checking  identifies  the  journal  items 
positively,  obviating  the  confusion  which  would  result  from  uncer- 
tainty regarding  them.  Consequently,  if  the  entries  are  distinct,  it  is 
unnecessary  to  check  the  journal. 

After  all  the  items  from  the  journal  have  been  checked  off  on 
the  ledger,  go  through  the  ledger,  page  by  page,  commencing  at  the 
first  page,  and  take  off  the  total  journal  debits  on  each  page,  entering 
on  a  sheet  of  paper  the  ledger  folio  and  the  total  amount  of  the  jour- 
nal debits  posted  on  the  page. 

This  will  be  a  very  easy  matter,  as  the  journal  items  will  be  con- 
spicuous and  easily  distinguished  by  the  blue  check  marks  which  you 
have  made.  When  the  journal  debits  have  been  taken  off  the  entire 
ledger,  the  sheet  should  be  footed  and,  if  the  total  amount  of  the 
sheet  agrees  with  the  summary  of  the  footings  of  the  journal,  it  is 
correct.  If  corrections  are  necessary,  do  not  add  or  subtract  from 
the  total,  but  correct  the  item  opposite  the  folio. 

Commencing  at  the  first  page  of  the  ledger,  go  through  the  ledger 
again,  page  after  page,  and  take  off  the  total  journal  credits  on  each 
page,  entering  on  another  sheet  the  ledger  folio  and  the  total  amount 
of  the  journal  credits  posted  on  each  page,  in  the  same  manner  that 
the  debits  were  taken  off.  Foot  the  sheet  containing  the  credits  and 
see  that  it  agrees  with  the  total  of  the  debits. 

If  the  cash  postings  to  the  ledger  have  been  made  in  a  manner 
which  makes  it  a  simple  matter  to  discriminate  between  the  cash  and 
other  items,  it  should  not  be  necessary  to  check  out  the  cash;  but  if 
not,  check  out  the  cash  postings,  making  your  check  marks  on  the 
ledger  with  a  red  lead  pencil.  The  red  pencil  will  identify  the  items, 
so  that  they  can  be  distinguished  from  the  other  postings. 

Commencing  at  the  first  page  of  the  ledger,  go  through  the  ledger 
once  more,  page  after  page,  and  take  off  the  total  debits  for  cash  pay- 
ments on  each  page,  entering  on  a  sheet,  each  ledger  folio  and  the 
total  amount  of  the  items  posted  on  the  folio.  Foot  the  sheet  con- 
taining the  cash  payments  taken  from  the  ledger  and,  if  it  is  correct, 
it  will  agree  with  the  cash  payments  on  the  summary. 

Commencing  at  the  first  page  of  the  ledger,  go  through  the  ledger 
again  and  take  off  the  credits  for  cash  receipts;  foot  the  sheet  and 
compare  the  total  with  the  total  cash  receipts. 


62  ACCOUNTING   PRACTICE 

Commencing  at  the  first  page  of  the  ledger,  go  through  the  ledger 
again  and  take  off  the  debits  posted  from  the  purchase  credit  jour- 
nal; foot  the  sheet  and  verify  the  total. 

Next,  take  off  the  ledger  the  credits  from  the  purchase  journal. 

Next,  take  off  the  ledger  the  credits  posted  from  the  sales  credit 
journal. 

Next,  take  off  the  ledger  the  debits  posted  from  the  sales  book. 

In  all  cases,  carefully  check  the  postings  to  the  ledger,  of  the 
totals  or  analysis  of  the  cash  receipts  and  payments,  purchases,  pur- 
chase credits,  sales,  and  sales  credits,  and,  after  the  work  has  been 
completed,  if  the  equilibrium  of  the  ledger  has  not  been  established, 
the  difficulty  can  be  located  by  bringing  the  figures  together  in  the 
following  manner: 

Take  the  trial  balance  for  the  beginning  of  the  period;  see  that 
the  folios  of  the  ledger  are  in  their  consecutive  order;  foot  the  debit 
balances  and  the  credit  balances  taken  from  pages  i  to  99  of  the 
ledger;  foot  the  debit  balances  and  credit  balances  taken  from  pages 
100  to  199;  do  the  same  with  the  balances  taken  from  pages  200 
to  299 ;  300  to  399 ;  400  to  499 ;  500  to  599 ;  600  to  699 ;  and  so  on 
through  the  entire  ledger. 

For  illustration  we  will  presume  that  the  ledger  had  500  pages 
(see  Form  30). 

DEBITS.  CREDITS. 

Pages  I   to  99 $599,601.22  $1,000,000.00 

"  100  to  199 710,820.91  10,700.60 

"  200  to  299 47-31  150,401.70 

"  300  to  399 87.20  210,871.16 

"  400  to  500 90,601.15  29,184.33 

Totals  as  per  trial  balance $1,401,157.79  $1,401,157.79 

The  ledger  is  now  divided  into  sections  of  one  hundred  pages  to 
each  section  (can  be  any  quantity  desired)  and  the  work  is  analyzed  in 
accordance  with  the  sections.  Prepare  a  sheet  as  illustrated  on  Form 
30  A  for  debits  and  also  prepare  a  sheet  Form  30  B  for  credits. 

Enter  on  the  Form  30  A,  in  the  column  headed  "  i  to  99,"  the 
total  amount  of  the  debit  balances  taken  from  pages  i  to  99  of  the 


LOCATING   DIFFERENCES    IN    THE   LEDGER         63 

ledger;  in  the  column  headed  "  icx)  to  199,"  enter  the  total  of  the 
debit  balances  taken  from  pages  100  to  199;  in  the  column  headed 
**  200  to  299,"  enter  the  total  of  the  debit  balances  taken  from  pages 
200  to  299 ;  in  the  column  headed  "  300  to  399,"  enter  the  total  of  the 
debit  balances  taken  from  pages  300  to  399 ;  and  in  the  column  headed 
"  400  to  500,"  enter  the  total  of  the  debit  balances  taken  from  pages 
400  to  500.  When  footed  across  the  sheet  Form  30  A,  the  total 
must  be  the  footing  of  the  trial  balance.  Enter  the  credits  sum- 
marized on  Form  30  B,  in  the  same  way  the  debits  were  entered  on 
Form  30  A. 

Foot  the  various  sheets  for  debits  and  credits  and  enter  the  debits 
on  the  summary  (Form  30  A)  and  credits  on  the  summary  (Form 
30  B).  Foot  the  columns  of  30  A  and  30  B,  and  carry  the  total  foot- 
ings of  Form  30  A  to  Form  30  B  and  the  total  footings  of  Form 
30  B  to  Form  30  A.  On  both  Forms  30  A  and  30  B,  where  the  sheet 
footings  are  greater  than  the  footings  carried  from  the  other  sheet, 
carry  down  the  difference,  and  the  footings  of  the  differences  on 
Forms  30  A  and  30  B  will  agree. 

The  trial  balance  for  the  end  of  the  period  can  now  be  analyzed 
according  to  sections  and,  as  the  footings  of  each  section  of  the  trial 
balance,  are  made,  they  can  be  compared  with  the  results  shown  on 
Forms  30  A  and  30  B. 

4.    When  to  Block  a  Ledger 

The  writer  has  been  very  successful  in  locating  balances  and  as 
a  rule  has  been  able  to  say  about  when  he  would  be  finished ;  because 
he  never  goes  to  work  blindly,  commencing  to  check  before  thinking 
out  his  plans. 

Sit  down  and  think  it  over  carefully ;  for  in  most  cases  the  book- 
keepers and  auditors  of  the  company  have  exhausted  every  available 
means  before  engaging  an  auditor.  Learn  just  what  has  been  done, 
then  look  over  the  books. 

In  a  case  where  the  majority  of  the  postings  are  of  one  class — 
such  as  in  a  newspaper  advertising  business,  where  there  are  a  multi- 
plicity of  entries  charging  the  accounts  and  only  a  very  few  entries 
for  cash,  allowances  and  journal  sundries — to  check  the  charges  like 


64  ACCOUNTING    PRACTICE 

advertising  would  require  almost  the  same  time  taken  to  make  the 
postings,  whereas  to  block  off  the  charges  for  advertising  would  take 
a  very  little  time.  If  the  block  for  a  year  does  not  agree,  the  totals 
taken  from  the  ledger  can  be  analyzed  according  to  months  and  the 
difference  confined  to  one  month. 

If  it  agreed,  the  other  postings  can  be  proved  in  a  short  time 
and  the  work  completed. 

In  many  cases  where  it  was  impossible  to  check  out  the  books, 
this  plan  has  been  operated  with  success. 


IX.     PLANNING  A  GENERAL  SYSTEM 
OF   BOOKS 

Examine  the  books  which  are  in  use  and  make  a  description  of 
the  books,  using  a  separate  piece  of  paper  for  each  book;  pin  these 
together  and  use  them  for  reference  and  also  make  notes  relating  to 
each  book  on  the  memorandum  of  that  book. 

Take  off  a  trial  balance  showing  the  accounts  on  the  ledger,  and 
make  a  condensed  statement  of  profit  and  loss.  (Report  Forms 
I.  to  9.) 

Care  should  be  exercised  in  the  preparation  of  this  statement,  for 
the  object  of  the  statement  is  to  determine  the  most  satisfactory  man- 
ner of  assembling  the  accounts. 

Make  a  condensed  trial  balance  of  the  business  (see  Report  Form 
No.  46)  ;  this  will  show  the  features  of  the  business  which  have  been 
made  prominent  and  the  analysis  of  the  various  accounts.  From  this 
you  should  be  able  to  design  a  monthly  statement  (Form  No.  2y). 

This  is  what  the  books  are  to  work  up  to  and  should  give  the 
desired  information. 

Always  endeavor  first  to  give  the  client  the  information  he  needs, 
in  the  simplest  statement  possible.  Let  your  ideas  be  elastic  and  never 
force  them  upon  a  client.  If  you  think  you  have  a  method  which 
would  prove  valuable  to  the  client,  explain  it  to  him  in  detail, 
giving  the  reasons  for  your  deductions;  if  not  acceptable,  get  an 
idea  of  what  he  does  want  and  show  enthusiasm  in  working  up  his 
ideas. 

Do  not  try  to  formulate  a  plan  for  the  complete  system  at  once; 
it  only  confuses  the  mind  and  exhausts  your  vitality. 

Take  each  division  of  the  work  separately ,  and  give  it  your  indi- 
vidual attention. 

Formulate  the  plan  of  operating  that  particular  branch  of  work 

65 


66  ACCOUNTING   PRACTICE 

and,  when  you  are  satisfied  you  have  it  right,  make  up  your  forms 
in  rough  and  write  a  careful  description  of  your  plan  of  operating 
same. 

Make  an  entry  which  will  incorporate  the  results  in  the  general 
books,  and  study  it  carefully  before  considering  the  next  division  of 
the  business. 

Take  up  each  division  of  the  business  and  consider  it  carefully. 
After  you  have  done  so  and  have  an  entry  for  each  book,  review 
the  matter  and  see  if  you  have  overlooked  any  class  of  entries. 

Formulate  a  plan  of  operating  the  system  as  a  whole  when  you 
are  satisfied  that  you  have  covered  the  detail  thoroughly. 

The  best  method  of  satisfying  yourself  is  to  rewrite  the  books 
for  a  month  or  so,  not  every  entry  but  every  style  of  entry  appear- 
ing on  the  books.  Preserve  these  notes  carefully,  for  your  mind  will 
require  refreshing  when  installing  the  books. 

To  Illustrate:  A  Trading  Business 

In  a  trading  business  you  have  buying  and  selling.  By  preparing 
a  condensed  statement  of  profit  and  loss  (Report  Form  No.  3),  and 
a  condensed  trial  balance  (Form  46),  you  get  an  idea  of  the  features 
which  were  considered  prominent  by  the  people  who  developed  the 
business. 

Sales 

Examine  the  sales  carefully  and  see  if  the  method  of  handling  the 
sales  is  open  to  improvement.  Do  not  install  special  column  bound 
books  where  a  number  of  clerks  are  posting  from  the  same  book.  It 
causes  confusion,  because  only  one  person  can  use  the  book  at  a  time. 
Always  consider  whether  the  book  can  be  conveniently  operated. 

The  sales  accounts  should  always  be  entered  in  a  special  ledger 
and  a  control  account  for  them  kept  in  the  general  or  private  ledger. 

After  deciding  the  most  desirable  way  of  handling  the  sales,  if 
you  plan  a  new  form,  make  a  rough  outline,  and  an  entry  covering 
the  sales  for  a  month. 

See  sales  journal  Form  No.  25 ;  the  following  entry  will  incor- 
porate the  results  of  that  form  in  the  general  books: 


PLANNING   A    GENERAL    SYSTEM    OF    BOOKS       67 

Sales  Journal 

Debits :  Cash  Sales  Account $1 19.70 

Sales  Ledger  Account 37,601.72 

Purchase  Ledger  Account 401.15 

Credit:  To  Sales  Account $38,122.57 

Debit :    Cost  of  Sales  Account 24,619.22 

Credit:   To   Merchandise  Account $24,619.22 

Consider  very  carefully  before  making  radical  changes. 

It  simplifies  matters  to  have  all  work  of  a  similar  character  com- 
piled in  a  like  manner. 

Endeavor  to  arrange  the  books  so  that  one  entry  will  incorporate 
the  results  on  the  general  books. 

Purchases 

Study  the  expense  and  merchandise  purchase  accounts  on  the 
ledger,  and  see  where  the  entries  originated. 

If  a  large  number  of  entries  of  a  certain  class  must  originate  in 
the  cash  book,  note  the  fact  on  the  memorandum  for  the  cash  book. 

Decide  whether  it  is  advisable  to  keep  a  voucher  register  (Form 
'32)  or  a  purchase  ledger. 

If  the  purchases  are  made  of  certain  creditors,  the  purchase  ledger 
should  be  kept;  but  if  there  are  an  extraordinary  number  of  parties 
from  whom  purchases  are  made,  the  voucher  register  should  be  given 
the  preference. 

Examine  the  methods  which  were  in  vogue  for  compiling  the  pur- 
chases, merchandise  and  expense. 

( 1 )  Would  it  be  advantageous  to  make  a  special  column  purchase 
journal  ? 

(2)  Would  it  be  desirable  to  have  a  purchase  journal  for  ex- 
penses and  a  purchase  journal  for  merchandise? 

(3)  Is  it  necessary  to  keep  a  purchase  ledger?  The  bulk  of  the 
merchandise  purchases  in  many  cases  is  purchased  of  such  a  large 
number  of  parties,  that  it  would  be  a  waste  of  time  making  an  account 
for  each  purchase. 


68  ACCOUNTING   PRACTICE 

(4)  If  not  necessary  to  keep  a  purchase  ledger,  how  should  the 
purchases  be  kept? 

(5)  Would  a  voucher  system  be  desirable? 

(6)  Would  a  vertical  file  be  desirable?  (See  improved  voucher 
system.) 

After  deciding  upon  the  book  to  be  used  for  the  purchases, 
make  a  rough  draft  and  an  entry  covering  the  purchases  for  a 
month. 

See  Purchase  Journal,  Form  No.  24 ;  the  following  entry  will  in- 
corporate the  results  of  that  form  in  the  general  books : 

Purchase  Journal 

Debits :    Expense   Account $371.60 

Merchandise 47,691.77 

Freight  and  Cartage 139-87 

Advertising 300.00 

Repairs  and  Renewals...  194.16 

Selling  Expenses 1,122.57 

Provisional   Account 301 -70 

Credits :  To  Sales  Ledger $317.22 

To  Purchase  Ledger ....  49,804.45 

$50,121.67  $50,121.67 

See  also  Voucher  Register  Form  No.  32 ;  the  following  entry  will 
incorporate  the  results  of  that  form  in  the  general  books : 

Voucher  Register 

Debits :  Expense   Account    $371.60 

Merchandise 49,691.77 

Freight  and  Cartage 139-87 

Advertising 300.00 

Repairs  and  Renewals 194.16 

Selling  Expenses 1,122.57 

Provisional  Account 301.70 

Credit :  To  Accounts   Payable $50,121.67 


PLANNING    A    GENERAL    SYSTEM    OF    BOOKS       69 

Cash  Receipts 

Study  the  cash  receipts  and  ascertain  their  sources.  Decide 
whether  it  would  be  advisable  to  inaugurate  a  system  like  Form  26, 
entering  nothing  but  checks  on  the  cash  book,  or  a  system  like  Form 
29,  entering  cash  and  checks  on  the  cash  book. 

There  are  many  reasons  why  the  system  of  entering  nothing  but 
checks  on  the  cash  book  is  the  better  one:  It  is  more  susceptible  to 
an  audit ;  it  makes  the  entries  and  payments  final ;  it  is  easy  to  prove 
and  locate  differences.  There  are  many  other  reasons  too  numerous 
to  mention. 

Petty  Cash  Fund 

This  plan  of  operating  the  petty  cash  account  was  devised  by  the 
author  and  is  being  universally  adopted,  because  it  is  simple  and 
makes  it  possible  to  enter  nothing  but  checks  in  the  cash  book. 

All  receipts  are  deposited  and  never  confused  with  the  petty  cash 
fund.    The  amount  received  is  set  aside  until  deposited. 

An  even  sum,  say  $500,  sufficient  to  meet  the  requirements  of 
the  business,  is  set  aside  as  a  fund  from  which  all  petty  items  are 
paid  and  all  matters  not  conveniently  paid  by  check.  Each  payment 
is  entered  in  a  book  or  on  an  envelope. 

At  any  time  it  is  desirable  to  balance  the  cash,  the  total  payments 
should  be  counted  as  so  much  cash  and  the  balance  must  equal  $500. 
This  enables  the  bookkeeper  to  square  up  his  cash  quickly  and  turn 
it  over  to  another  as  often  as  desired. 

When  it  becomes  necessary  or  desirable  to  reimburse  the  fund,  the 
account  is  closed  and  a  check  is  drawn  for  the  amount  which  was 
paid  from  the  fund,  the  original  record  of  the  payments  being  sub- 
mitted as  a  voucher  for  the  check  and  the  details  of  the  check  noted 
on  the  record.  If  an  envelope  is  used,  the  size  should  be  such,  that 
it  can  be  conveniently  filed  with  the  voucher  for  the  check. 

The  check  is  entered  on  the  cash  book  like  all  other  checks,  and 
the  record  is  final  and  complete. 

Nothing  but  checks  are  entered  on  the  cash  book;  consequently 
the  deposits  on  the  cash  book  should  agree  with  the  check  book 
account  and  the  cash'  payments  should  equal  the  checks. 


70 


ACCOUNTING   PRACTICE 


See  Cash  Receipts  Form  No.  23;  the  following  entry  will  incor- 
porate the  results  of  that  form  in  the  general  books: 

Cash  Receipts 

Debit :      Discount    $1  icx^7 

Bank  Account  52,133.31 

Credits:  To  Sales  Ledger  Account $21,777.86 

"    Purchase  Ledger  Account  41-32 

"    Bills  Payable  Account 30,0(X).oo 

"    Cash  Sales 1 19.70 

"    Exchange 305.00 

$52,243.88  $52,243.88 

Discount  Column 

This  column  is  provided  when  discount  is  allowed  in  settlements. 
If  there  are  also  petty  allowances  for  freight,  etc.,  columns  can  be 
provided  if  desired. 

Bank  Column 

This  column  is  for  the  deposits  and  should  agree  with  the  pass- 
book account. 

Sales  Ledger  Column 

This  column  is  for  all  items  posted  to  the  credit  of  sales  ledger 
accounts.  The  total  amount  credited  to  the  sales  ledger  should  be 
entered  in  this  column. 

Purchase  Ledger  Column 

This  column  is  for  credits  posted  to  the  purchase  ledger  for  cash 
received.  The  total  amount  credited  in  the  purchase  ledger  should 
be  entered  in  this  column. 

Bills  Payable  and  all  such  items,  occurring  only  occasionally,  are 
entered  in  the  private  ledger  column  and  posted  direct  to  it. 

Cash  Sales 

Where  cash  sales  are  made,  it  is  very  convenient  to  provide  a 
column  for  same  on  the  cash  book.     If  this  is  done,  a  column  should 


PLANNING   A    GENERAL    SYSTEM    OF    BOOKS        71 

also  be  provided  in  the  sales  journal  or  some  method  devised  for 
proving  the  cash  sales. 


Exchange 

An  exchange  column  should  be  provided  on  both  sides  of  the  cash 
book  and  all  items  of  exchange  entered  in  it.  This  is  necessary  to 
make  the  cash  and  check  books  agree  in  totals. 

The  following  entry  will  incorporate  the  results  of  Form  26  in 
the  general  books: 

Cash  Payments 

Debits:    Purchase  Ledger  Account. . .  .$11,701.50 

Sales  Ledger  Account io-75 

Bills  Payable   10,000.00 

Postage 50.00 

Expense 71-92 

Salary    475-00 

Wages   392.00 

Merchandise   94-73 

Freight  and  Cartage 71.62 

Commission    95-00 

Interest   1 17.40 

Exchange    305.00 

Credits :  To  Discount $1 12.31 

To  Bank 23,272.61 


$23,384.92  $23,384.92 

Cash  Payables 

To  obviate  the  necessity  of  an  extended  analysis  of  the  cash  book 
payments,  the  following  method  was  devised  by  the  author: 

Provide  a  column  beside  the  purchase  ledger  column  on  the  pur- 
chase journal  (see  Form  28),  and  also  on  the  cash  book  (see 
Form  29).  All  items  it  is  desirable  to  pay  in  cash  without  opening 
an  account  on  the  purchase  or  sales  ledger,  can  be  entered  in  the  pur- 
chase journal,  just  as  any  other  invoice  and  the  payment  made,  charg- 
ing the  item  in  the  cash  book  in  the  column  for  Cash  Payables. 


72  ACCOUNTING    PRACTICE 

The  Cash  Payables  on  the  purchase  journal  will  offset  the  Cash 
Payables  on  the  cash  book. 

Summing  Up 

After  you  have  drawn  up  your  forms  and  made  your  entries,  list 
the  entries  on  a  sheet  of  journal  paper  and  foot  them. 

Take  a  sheet  of  analysis  paper  and  enter  the  condensed  trial  bal- 
ance of  the  business  (rearranged  to  meet  your  scheme).  Post  to 
the  sheet  the  entries  for  the  forms  you  have  made  and  extend  the 
results  just  as  designed  on  Form  27.  In  posting  to  the  sheet,  it  is 
desirable  to  have  some  character  represent  each  of  the  entries  so 
that  they  can  be  distinguished  at  a  glance.  To  illustrate:  Have  a 
square  at  the  entry  for  sales,  a  diamond  at  the  entry  for  cash  receipts, 
etc.  If  it  works  out  satisfactorily,  it  is  safe  to  go  ahead  and  have  the 
forms  made. 

Monthly  Entries 

The  best  and  cleanest  method  of  making  the  monthly  entries  is 
to  spread  in  the  journal  the  entries  for  each  book,  so  that  one  page 
(or  two  if  necessary)  will  contain  the  entire  results  of  the  business. 
This  has  been  accomplished  in  some  of  the  largest  concerns.  The 
total  of  the  journal  footings  will  equal  the  totals  in  the  columns  for 
"  Entries  for  the  Month  "  on  Form  No.  27. 

If  an  error  occurs,  it  can  be  located  quickly  by  checking  the  state- 
ment with  the  journal. 

This  is  accomplished  with  ease  by  having  a  printed  form  for  each 
book,  so  that  the  footings  can  be  entered  without  writing  the  names  of 
the  accounts. 

Daily  Balance  Sheet 

This  is  virtually  the  method  employed  to  secure  a  daily  balance 
sheet;  the  results  of  each  book  are  so  arranged  and  reported,  the 
total  for  each  day  being  posted  to  a  statement  (Form  27). 

The  total  debits  and  credits  of  the  entries  for  the  day  (month 
or  week)  should  equal,  and  the  amount  for  each  account  should  be 
added  to  the  results  of  the  previous  day  and  extended  into  the  columns 
for  trial  balance  up  to  date. 


PLANNING   A    GENERAL    SYSTEM    OF    BOOKS       73 

The  daily  results  are  sometimes  more  conveniently  reported  for 
the  month  up  to  date,  in  which  case  the  results  reported  are  added 
to  the  results  for  the  closing  of  the  previous  month. 

Opening  a  New  Ledger 

Before  opening  a  new  ledger,  design  the  periodical  statement  for 
the  business.     (See  Form  No.  27.) 

Make  a  copy  of  the  periodical  statement  and  note,  opposite  the 
name  of  each  account  on  the  statement,  the  number  of  ledger  pages 
it  is  expedient  to  assign  to  each  account;  add  the  total  of  the  pages 
and  see  if  the  total  exceeds  the  number  of  pages  of  the  new  ledger. 
After  you  have  reduced  or  increased  the  pages  assigned  to  each 
account  to  the  required  capacity  of  the  ledger,  enter  the  folio  of  each 
account  opposite  the  name  of  the  account  on  the  statement.  Then 
commence  and  open  each  account  on  the  ledger  according  to  the 
design  on  the  statement. 

General  Ledger  Index 

To  provide  a  convenient  index  for  the  general  ledger,  make  a 
list  of  the  accounts  and  folios  on  a  sheet  of  paper  a  little  shorter 
than  the  ledger.  Leave  a  margin  of  about  four  inches  on  the  left 
hand  side  and  paste  the  sheet  on  the  last  fly  leaf  of  the  ledger,  so 
that  when  the  list  is  turned  outward,  the  account  names  and  folios 
will  be  in  evidence.  When  not  in  use,  turn  the  list  inward  so  it  will 
not  show  or  be  in  the  way. 

Provisional  Account 

In  every  business  there  are  certain  items  of  expense  such  as  in- 
surance, taxes,  etc.,  which  should  be  distributed  over  an  extended 
period.  It  has  been  the  custom  to  carry  these  items  in  such  accounts 
as  Unexpired  Insurance,  Unexpired  Taxes,  etc. ;  but  this  requires  con- 
siderable labor  each  month  in  order  to  determine  accurately  the 
amount  which  should  be  charged  against  that  particular  month.  To 
obviate  this  repetition,  necessitated  each  month,  a  book  was  devised 
by  the  author  which  is  called  the  Provisional  Account  Book. 

The  book  is  a  sub-analysis  with  fourteen  columns  (see  Form 
No.  22),  the  first  column  being  for  the  amount,  the  next  twelve  col- 


74  ACCOUNTING    PRACTICE 

umns  being  for  the  twelve  months  of  the  year,  and  the  last  column 
for  the  proportion  of  the  expense  expiring  the   following  year. 

A  column  is  provided  on  the  purchase  journal  for  provisional 
account  (see  Forms  Nos.  24  and  29).  Each  and  every  item  charged 
in  this  column  is  entered  in  the  Provisional  Account  Book,  the  total 
amount  being  entered  in  the  first  column,  and  the  amount  chargeable 
to  the  current  year  distributed  in  the  columns  for  the  months  to 
which  the  several  amounts  apply.  The  amount  which  will  be  unex- 
pired at  the  end  of  the  fiscal  year  is  entered  in  the  last  column. 

Several  sheets  (Form  No.  22)  can  be  used  to  further  analyze 
this  expense,' by  discriminating  between  taxes,  insurance,  etc.,  by 
using  a  sheet  for  each,  with  only  one  provisional  account  in  the 
ledger. 

Improved  Voucher  System 

If  the  purchases  are  made  from  so  many  different  parties  that 
it  is  unadvisable  to  keep  a  purchase  ledger  account  of  each,  the  fol- 
lowing plan  will  appeal  to  many: 

Provide  a  vertical  file  for  invoices  and  divide  it  into  two  divisions : 
one  for  unpaid  and  one  for  paid  bills. 

Enter  the  invoices  in  the  voucher  register  Form  No.  32.  All 
invoices  are  registered  in  the  order  of  entry,  the  number  being 
entered  on  the  invoice. 

File  the  bills  alphabetically  in  the  division  of  the  vertical  file  for 
unpaid  bills,  using  a  bellows  file  (monthly)  for  large  accounts,  and 
allow  them  to  remain  there  until  paid. 

Parties  requiring  invoices  must  never  take  the  bills  from  the  files 
without  leaving  a  receipt.  In  fact,  one  person  should  be  responsible 
for  the  file  and  no  others  should  have  access  to  it. 

When  the  bills  are  paid,  they  are  removed  from  the  division  for 
unpaid  bills,  stamped  paid,  voucher  register  record  made  and  the  bills 
put  in  the  division  for  paid  bills. 

Voucher  Register  Record 

When  the  bills  are  paid,  the  payment  should  be  entered  opposite 
the  item  in  the  voucher  register  in  the  column  provided  for  the  cur- 
rent month. 


PLANNING    A    GENERAL    SYSTEM    OF    BOOKS        75 

The  voucher  register  has  three  cohimns  for  the  memorandum  of 
amount  of  the  payment.  These  are  for  the  current  month  of  entry 
and  the  next  succeeding  month  (assuming  all  bills  are  settled  in  two 
months).  If  a  bill  is  paid  the  same  month  as  entered  in  the  voucher 
register,  the  payment  is  entered  in  the  column  for  current  month. 

When  balancing  the  books,  a  list  should  be  made  on  the  adding 
machine  of  the  items  unpaid  and  the  total  compared  with  the  control 
account. 

If  one  or  two  items  extend  beyond  the  two  months,  they  should 
be  carried  forward  in  red  ink  on  the  voucher  register. 

The  total  payments  for  any  month  should  agree  with  the  total 
of  the  columns  on  the  voucher  register  for  payments  made  during 
that  month. 

Branch  Office  Accounts 

The  branch  office  books  should  be  as  simple  as  possible ;  the  books 
of  original  entry  should  be  made  in  manifold  and  the  originals  sent 
to  the  home  office. 

The  branch  office  books  should  have  columns  for  the  home  office 
and  the  purchase  journal  should  have  a  column  for  the  bills  to  be 
settled  by  the  home  office. 

Each  branch  office  should  have  a  fund  from  which  all  expendi- 
tures should  be  made  by  check  only,  and  the  branch  offices  should 
be  reimbursed  for  the  actual  expenditures  as  approved  by  the  home 
office. 

A  monthly  statement  should  be  provided  for  each  office  similar 
to  Form  No.  27;  in  addition  a  summary  of  income  and  expenses, 
showing  the  results  for  the  month,  same  month  last  year,  for  the 
year  to  date  and  same  period  last  year;  a  summary  of  the  sales, 
showing  the  inventory  at  the  first  of  the  month,  plus  the  purchases, 
less  the  inventory  at  the  end  of  the  month,  which  makes  the  cost  of 
the  sales.  In  connection  with  this  report  should  be  a  statement  of 
the  sales,  deducting  returns  and  allowances  and  showing  the  net 
sales. 

From  the  net  sales  should  be  deducted  the  cost  of  sales,  showing 
the  gross  profits  on  each  line  of  merchandise,  according  to  the  anal- 
ysis in  common  use. 


76 


ACCOUNTING    PRACTICE 


A  control  plant  ledger  should  be  kept  at  the  home  office.  This 
ledger  should  be  a  duplicate  of  the  ledgers  at  the  plants. 

A  trial  balance  from  the  plant  ledger  should  give  a  balance  sheet 
in  total  and  detail  of  all  the  plants. 

The  final  report  should  be  the  balance  sheet  of  the  entire  busi- 
ness as  one,  and  this  should  be  supported  by  the  balance  sheet  show- 
ing the  detail  of  each  item  of  the  first  balance  sheet.  By  detail  is 
meant  how  much  is  at  each  plant. 

This  plan  can  be  operated  so  that  no  ledgers  are  kept  at  the 
plants,  by  having  the  manifold  sheets  forwarded  to  the  home  office 
for  entry.  It  is  no  more  work  for  the  home  office  and  takes  the 
results  and  the  work  from  the  branch  offices. 


X.     GENERAL   NOTES  AND   SUGGESTIONS 

1.  Amplified  Trial  Balance 

In  a  case  where  it  is  necessary  to  eliminate  entries  which  were 
superfluous  or  tended  to  confuse,  it  is  very  satisfactory  to  make  an 
amplified  trial  balance,  and  after  determining  the  entries  to  be  elimi- 
nated, to  deduct  such  from  the  accounts  and  thus  produce  the  results 
which  would  have  appeared  had  the  books  been  written  up  correctly 
in  the  first  place. 

An  amplified  trial  balance  differs  from  an  ordinary  trial  balance 
in  that,  instead  of  taking  off  the  balance  of  the  account,  the  total 
debits  and  total  credits  are  taken  oflF.  The  difference  between  the 
debits  and  credits  of  each  account  (as  taken  oflf  for  the  amplified 
trial  balance)  should  equal  the  balance  of  the  account  as  per  the 
regular  trial  balance. 

2.  Account  Current 

An  account  current  is  an  account  between  two  offices,  and,  all 
entries  made  by  each  being  considered,  the  debit  balance  on  the  books 
of  one  office  should  equal  the  credit  balance  on  the  books  of  the  other 
office. 

If  a  request  is  made  by  one  office  to  another  for  an  account  cur- 
rent, it  should  be  furnished  with  a  detailed  statement  of  its  account 
as  it  stands  on  the  books,  commencing  with  balance  the  last  time  an 
account  current  was  rendered,  showing  all  the  debit  items  and  credit 
items  entered  in  the  account  and  the  balance  at  the  end. 

3.  Bills  Receivable  Discounted 

The  auditor  should  make  a  record  of  all  discounts  when  auditing 
and  if  not  settled  as  at  the  date  the  assets  are  verified,  the  items 
should  be  scheduled  and  set  up  in  the  report  as  a  contingent  asset  and 
a  contingent  liability. 

77 


yS  ACCOUNTING    PRACTICE 

4.  Accommodation  Paper 

If  the  business  is  in  any  way  liable  as  indorser  or  maker  of 
accommodation  paper,  the  notes  should  be  considered  a  contingent 
liability  when  preparing  a  balance  sheet. 

5.  An  Exhibit 

An  exhibit  is  something  displayed  or  presented  to  view.  In  sub- 
mitting statements,  schedules,  etc.,  as  part  of  a  report,  it  is  proper  to 
characterize  all  as  exhibits,  inasmuch  as  all  schedules  and  statements 
are  exhibits,  but  all  exhibits  are  not  statements  or  schedules. 

Anything  submitted  with  a  report  or  supplementary  to  a  report 
is  an  exhibit,  and  should  be  so  characterized,  whether  it  is  a  photo- 
graph, plan,  design,  letter,  or  copy  of  any  instrument. 

6.  A  Statement 

In  accounting,  a  statement  is  an  arrangement  of  figures,  compiled 
to  show  certain  results.  Although  a  schedule  is  virtually  a  statement, 
a  distinction  is  evident  and,  inasmuch  as  each  sets  forth  distinctly 
its  character,  accountants  are  recommended  to  discriminate  in  using 
the  words  by  adapting  the  special  significance  of  the  words. 

7.  A  Schedule 

In  accounting,  a  schedule  is  a  list  of  items  or  an  inventory.  Al- 
though many  accountants  to-day  interpret  the  meaning  of  schedule 
to  be  a  statement,  the  old  professional  accountants  interpreted  the 
meaning  of  the  word  to  apply  only  to  a  list.  If  the  list  was  converted 
into  a  statement  at  the  end,  it  was  characterized  as  a  statement. 

8.  Unexpired  Insurance 

Unexpired  insurance  is  an  asset  and  should  be  considered  in  pre- 
paring a  statement  of  assets  and  liabilities.  To  determine  the  amount 
of  unexpired  insurance,  make  a  schedule  of  the  insurance  policies 
showing  the  number  of  the  policy,  name  of  insurer,  insured,  prop- 
erty, term,  premium,  and  extend  the  unexpired  portion  of  the  pre- 
mium. The  total  of  the  unexpired  portions  of  the  premiums  is  the 
amount  which  should  be  set  up  as  unexpired  insurance. 


GENERAL    NOTES   AND    SUGGESTIONS  79 

When  preparing  a  statement  of  the  vahie  of  unexpired  insurance 
for  a  continuing  company,  distribute  the  premium  equally  over  the 
months  of  the  term  of  the  policies;  but  when  the  statement  of  the 
value  of  unexpired  insurance  is  for  a  company  which  has  ordered 
the  cancellation  of  all  policies,  estimate  the  value  of  the  unexpired 
portion  of  the  premium  on  the  basis  of  its  rebate  value. 

Unexpired  insurance  should  be  carried  in  a  Provisional  Account 
as  described  and  distributed  on  Form  22, 

9.  Commission  on  Sales  of  Bonds  and  Stocks 

Commission  paid  on  the  sales  of  bonds  and  stocks  issued  as  capi- 
talization is  a  charge  against  surplus;  but  is  not  always  written  off 
immediately,  but  classified  with  promoters'  expenses  and  spread  over 
a  period  of  several  years. 

This  also  applies  to  rebates  and  allowances  of  every  character 
made  to  advance  the  sale  of  such  securities. 

10.  Plant  Equipment  Written  Off  Arbitrarily 

Plant  and  equipment  arbitrarily  written  off  the  books  should  be 
charged  against  surplus  account. 

11.  Labor  in  Trading  Account 

Labor  should  be  charged  in  the  trading  account  when  the  labor  is 
a  direct  cost  chargeable  against  sales ;  to  illustrate,  take  the  labor 
of  making  and  laying  carpets,  which  is  illustrated  on  Report  Form 
No.  19. 

12.  Bad  Debts  Charged  Off 

When  rendering  a  report  or  an  audit,  always  submit  a  schedule 
of  the  bad  accounts  charged  to  profit  and  loss  during  the  period. 

If  sales  are  being  made  to  parties  whose  accounts  were  previously 
written  off  as  bad,  look  up  the  correspondence  relating  to  the  accounts. 

13.  Collections  of  Bad  Debts 

If  collections  are  made  of  bad  accounts  which  were  charged  to 
profit  and  loss,  the  collections  should  be  credited  to  profit  and  loss 
account,  and  set  up  as  an  offset  to  the  bad  debts  charged  against  profit 
and  loss  during  the  current  period. 


8o  ACCOUNTING    PRACTICE 

14.  Surrendered  Capitalization 
Dividends  Waived 

Gifts  to  Corporations 

Capitalization  surrendered  without  consideration,  dividends  waived, 
and  all  gifts  to  a  corporation  should  be  credited  to  surplus  accounts, 
but  should  never  be  the  basis  for  declaring  dividends. 

15.  Dividends  from  Investments 

In  an  industrial  company,  all  dividends  from  investments  in  out- 
side enterprises  should  be  credited  to  surplus.  If  desired,  special 
accounts  can  be  maintained  to  show  the  return  from  certain  invest- 
ments, but  the  accounts  should  be  closed  into  surplus  without  con- 
fusing them  with  the  profit  and  loss  from  operation. 

16.  Unexpired  Discount 

Discount  on  bank  accommodations  should  be  considered  as  an 
asset  when  preparing  a  statement  of  assets  and  liabilities.  A  schedule 
should  be  made  of  the  discounts  showing  the  number,  date,  bank, 
due  date,  rate,  discount,  and  unexpired  portion  of  the  discount.  The 
total  of  the  unexpired  portions  of  the  discounts  is  the  unexpired 
discount. 

17.  Accrued  Taxes 

Accrued  taxes  should  be  considered  as  a  liability  when  preparing 
a  statement  of  assets  and  liabilities;  if  the  amount  due  is  not  set  up 
as  accrued  taxes  among  the  current  liabilities,  a  reserve  should  be  set 
aside  to  cover  the  amount  due. 

18.  Promoter's  Expenses 

Promoter's  expenses  are  a  charge  against  surplus  account,  but 
are  not  always  written  off  immediately,  being  spread  over  a  period 
of  several  years. 

19.  Administrative  Expenses  (meaning  home  office) 

The  salary  and  expenses  incurred  by  executive  and  administrative 
offices   should  be  prorated  over  the  various  auxiliary  offices.     The 


GENERAL    NOTES    AND    SUGGESTIONS  8i 

apportionment  of  these  may  be  made  on  a  basis  of  the  production, 
or  sales  of  the  auxiHary  offices  or  plants. 

20.  General  Expenses 

This  classification  should  include  all  the  expenses,  of  the  business 
which  are  of  a  general  character,  salary  and  expenses  of  officers,  and 
general  office  staff;  in  fact,  all  expenses  incurred  by  the  management 
in  the  supervision  of  the  business,  including  executive  and  administra- 
tive expenses. 

21.  Factory  Expenses 

This  classification  should  include  all  expenses  of  the  factory  at 
large,  which  cannot  be  assigned  to  particular  departments  because 
they  are  common  to  all ;  such  as  salary  and  expenses  of  the  factory 
superintendent  and  his  staff,  light  and  power  for  elevators,  insurance 
and  taxes  which  cannot  be  applied  to  departments,  accidents,  etc. 
Factory  expenses  should  be  prorated  equitably  over  the  various  de- 
partments, to  be  applied  against  the  production  of  the  departments. 

22.  Departmental  Expenses 

This  classification  should  include  all  expenditures  chargeable 
directly  and  specifically  to  each  department  for  supplies  used  in  the 
process  of  manufacture  which  do  not  enter  directly  into  the  product 
as  a  component  part  of  it;  also,  rent  of  factory  (computed  according 
to  required  floor  space),  heat,  light  and  power,  building  and  machinery 
repairs,  insurance  and  taxes,  reserve  for  depreciation,  and  any  charge 
for  which  the  department  is  directly  responsible. 

Department  expenses  should  be  distributed  equitably  over  the  pro- 
duction of  the  department. 

23.  Good  Will 

Good  will  is  a  legitimate  asset  in  an  industrial  enterprise  and  the 
most  accepted  method  of  computing  the  amount  of  good  will  is  to 
take  the  total  profits  for  the  last  five  years  and  deduct  from  them  five 
years'  interest  on  the  capitalization  at  seven  per  cent  per  annum; 
the  balance  is  good  will.    The  rate  of  interest  is  based  on  the  assump- 


82  ACCOUNTING    PRACTICE 

tion  that  no  capitalist  would  invest  in  an  enterprise  unless  he  was 
assured  at  least  seven  per  cent  annual  return. 

Good  will  should  be  written  off  the  books  during  five  subsequent 
years  by  charging  off  one-fifth  against  each  succeeding  year. 

24.  Relation  of  Profits  to  Investment 

The  relation  of  the  profits  to  the  amount  of  money  invested  is  one 
important  feature  to  be  considered  when  performing  a  financial  audit. 
The  small  percentage  of  profit  on  sales  showing  a  large  percentage 
on  investment  is  preferable  to  a  large  percentage  of  profit  on  sales 
with  a  small  percentage  of  profit  on  the  investment. 

25.  Voucher  Check 

The  common  form  of  folding  voucher  check  is  undesirable  for 
many  reasons,  and  is  being  dispensed  with.  As  a  rule,  the  indorse- 
ment is  overlooked  in  conforming  to  the  many  details  required  in 
executing  the  voucher.  The  indorsement  is  of  greater  importance 
than  the  receipt,  and  any  voucher  check  which  neglects  the  indorse- 
ment should  not  be  used. 

The  most  satisfactory  form  of  voucher  check  is  the  check  with 
a  small  form  on  the  back  of  the  check,  which  can  be  used  to  enter 
the  necessary  memorandum  of  the  settlement,  under  which  should  be 
printed,  **  Indorsed  in  settlement  of  the  above." 

26.  Control  Accounts 

In  order  to  divide  the  responsibility  for  the  work  of  keeping  the 
books,  large  concerns  are  obliged  to  keep  control  accounts  on  the 
general  ledger,  which  keep  a  record  by  totals  of  the  detail  entered  in 
the  various  supplementary  ledgers. 

The  control  account  shows  what  the  balance  of  the  supplementary 
ledger  should  be. 

To  illustrate,  consider  a  sales  ledger.  The  control  account  in  the 
general  ledger  would  be  charged  with  the  total  sales  posted  to  that 
ledger  and  credited  with  the  cash  receipts  and  sales  credits  for  the 
ledger.  Consequently,  if  the  detail  posting  to  the  sales  ledger  is  done 
correctly,  the  balance  of  the  sales  ledger  must  equal  the  balance  shown 
by  the  control  account  in  the  general  ledger. 


GENERAL  NOTES  AND  SUGGESTIONS     S^ 

This  method  has  been  very  satisfactory,  and  has  simpHfied  the 
taking  of  the  trial  balance  so  much,  that  it  is  being  adopted  by  most 
concerns. 

It  also  enables  the  bookkeeper  to  show  the  results  of  the  business 
promptly,  even  when  the  postings  to  the  sales  and  purchase  ledgers 
have  been  permitted  to  fall  behind ;  because  the  accounts  in  the  general 
ledger  are  few  and  the  totals  of  the  business  can  be  posted  in  a  short 
time,  and  thus  the  results  of  the  operations  of  the  business  known. 

27.  Planning  General  Ledger 

In  planning  a  general  ledger,  it  is  very  desirable  to  limit  the 
accounts  to  as  few  as  practical.  The  analysis  need  not  be  neglected, 
because  the  totals  of  four  or  five  of  the  purchase  journal  items  are 
posted  to  one  account,  for  the  detail  of  the  account  can  be  known 
(if  question  arises)  by  making  a  summary  of  the  monthly  totals  of 
the  purchase  journal. 

Another  plan  is  to  have  a  few  pages  of  the  ledger  made  especially 
for  the  expense  accounts,  by  using  a  whole  page  for  debits  and  a 
whole  page  for  credits,  and  ruling  five  or  six  columns  on  each  page. 
By  using  the  columns  for  an  analysis  of  the  items  and  posting  all 
the  items  to  total  columns  debit  and  credit,  so  that  the  diflFerence  of 
the  total  columns  will  be  the  balance  of  the  account  and  the  analytical 
columns  will  show  the  detail  of  the  total  columns. 

28.  Excessive  Valuation  of  Inventories 

When  the  inventories  are  valued  at  excessive  prices,  a  reserve 
should  be  set  up  to  offset  the  excessive  valuation. 

29.  Items  Previously  Charged  to  Capitalization 

If  a  physical  inventory  includes  items  which  have  been  previously 
charged  to  capitalization,  the  increased  value  of  assets  should  be  set 
up  in  some  account  in  the  nature  of  a  reserve,  until  the  proper  ad- 
justments have  been  made.  To  set  it  up  as  surplus  is  misleading. 
The  same  applies  to  tools,  implements,  etc.,  previously  charged  to  capi- 
talization. 


84 
30. 


ACCOUNTING   PRACTICE 


Inventories  of  Merchandise 

Where  Two  Values  Are  In  Evidence 

Inventories  should  be  figured  at  two  values  if  profits  are  figured 
on  the  production :  the  greater  at  the  market  value  and  the  lesser  at 
the  cost  value.  The  difference  between  the  totals  of  the  inventories 
should  be  set  up  as  a  reserve. 


Market  Value 

Cost  Value 

Reserve 

Material 

190,401  .  10 
215,981,70 

167,501  .30 
201,662  .  15 

22,899.80 
14,319-55 

Merchandise 

Total 

406,382.80 

369,163.45 

37.219-35 

In  the  preparation  of  the  statements  attached  to  a  report,  the 
inventories  are  considered  at  the  cost  value,  this  being  considered 
the  most  conservative.    The  reserve  represents  anticipated  profits. 

31.  Purchases  (in  report) 

If  desirable,  for  any  special  reason,  to  draw  attention  to  the  cred- 
its for  returns  and  allowances  on  purchases  or  the  gross  purchases, 
the  amount  of  same  can  be  carried  short.  The  net  amount  is  generally 
shown  because  a  multiplicity  of  deductions  in  a  report  only  confuses. 

32.  Supplies 

The  most  practical  method  of  handling  supplies  is  to  include  the 
net  cost  of  supplies  in  the  expenses,  general  and  manufacturing,  show- 
ing only  the  net  expenses  in  the  statements  and  the  value  of  the 
inventories  of  supplies  in  the  balance  sheet. 

33.  Dates  Used  In  Reports 

Never  make  the  date  January  ist  when  the  books  were  closed  as 
at  December  31st. 

34.  Interest  on  Capital 

Interest  on  capital  should  be  set  up  as  an  expense  when  the  inter- 
est is  charged  in  lieu  of  salary  of  the  proprietors  of  the  business. 

If  making  an  audit  to  show  profits,  the  interest  should  be  set  up 
separately  no  matter  what  the  conditions  are. 


GENERAL    NOTES    AND    SUGGESTIONS  85 

If  making  an  audit  for  the  parties  in  control  of  the  business,  inter- 
est on  capital  should  be  set  up  as  a  special  item  of  profit  and  loss. 

35.  Closing  Books  of  Corporations 

When  closing  books  of  corporations,  the  profits  should  be  trans- 
ferred to  surplus,  and  dividends  authorized  should  be  charged  against 
surplus  and  credited  to  Dividends  Payable. 

36.  Closing  Books  of  Partnerships 

When  closing  the  books  of  partnerships,  the  profits  and  personal 
drawings  should  be  carried  to  the  partners'  investment  accounts. 

37.  Arrangement  of  Exhibits 

In  preparing  a  report,  the  main  exhibits  should  be  arranged  in 
accordance  with  their  relation  to  each  other,  the  main  exhibits  being 
submitted  first  and  the  supplementary  exhibits,  statements  and  sched- 
ules following. 

Exhibits  are  also  arranged  according  to  their  relative  importance. 

38.  Check  Marks 

Be  neat  and  careful  in  making  your  check  marks ;  the  work  of 
excellent  accountants  has  been  condemned  severely  because  of  sloven- 
liness in  this  regard.  The  majority  of  business  men  take  pride  in 
the  neat  appearance  of  their  books  and  regard  with  disgust,  careless- 
ness in  marking  the  books,  especially  when  done  by  a  high-priced  man. 
It  is  generally  necessary  to  use  different  colored  pencils  to  distinguish 
the  different  marks. 

39.  Queries 

Queries  arising  in  the  course  of  the  audit  should  be  recorded  on  a 
working  paper  devoted  to  that  purpose  only,  and  when  investigated  and 
approved,  the  items  should  be  checked  off  on  the  working  paper. 

40.  Source  of  Statements 

In  making  notes  of  statements  made  by  others,  state  who  made 
the  statements,  when,  and  endeavor  to  record  their  exact  words  with- 
out ela'boration.    Always  state  facts. 


86  ACCOUNTING    PRACTICE 

41.  Binding  Reports 

Reports  are  bound  in  book  form  by  using  a  cover  and  binding  the 
sheets  in  the  cover  with  eyelets.  The  use  of  ribbons,  placed  through 
the  eyelets  and  fastened  in  the  front  of  the  cover  with  a  seal  has 
been  discontinued. 

42.  Letter  Heads 

Professionally,  it  is  not  good  taste  to  have  self-praise  or  adver- 
tising matter  printed  on  the  letter  heads.  Your  name,  public  account- 
ant, auditor  and  accountant,  or  your  degree,  your  address,  associates, 
if  any,  are  all  that  first-class  accountants  use. 

43.  Forms  of  Report 

The  idea  of  submitting  these  various  forms  has  been  to  set  forth 
the  principle  and  not  to  show  forms  which  are  to  be  copied  without 
considering  the  circumstances.  Always  have  a  regard  for  the  fitness 
of  things.  To  follow  set  rules  is  not  always  expedient.  Consider 
what  is  appropriate  to  the  conditions  and  endeavor  to  prepare  a  report 
suited  to  the  business  conditions. 

44.  Checking 

When  auditing  never,  under  any  circumstances,  arbitrarily  check 
items  which  are  unchecked.  Never  do  such  a  thing  during  the  prog- 
ress of  the  audit,  especially  when  seeking  a  difference.  Even  though 
you  do  give  it  up,  do  not  make  arbitrary  check  marks. 

Keep  a  record  of  the  marks  used  for  checking  postings  and  vouch- 
ing items. 

A  distinctive  mark  should  be  used  for  checking,  so  that  you  know 
by  the  mark  why  the  check  was  made,  and  a  memorandum  should 
be  made  on  the  working  papers  of  the  marks  which  were  used. 


PART    II 
COST   ACCOUNTING 


I.    COST  SYSTEMS  IN   GENERAL 

A  cost  system  is  a  method  of  bookkeeping  designed  to  show  the 
cost  of  manufacture,  and  to  provide  a  means  of  reckoning  the  basis 
upon  which  it  is  profitable  to  sell  the  production.  It  should  also  show 
the  results  of  purchasing,  conserve  the  material,  expose  unnecessary 
losses  and  supply  suitable  statements  of  the  progress  of  the  manu- 
facturing department. 

1.     Elements  of  Cost 

The  elements  of  cost  are  primarily  material,  labor  and  expense, 
and  under  ordinary  conditions  all  expenditures  can  be  so  classified. 


Material : 
Labor: 


j  Productive. 
(  Nonproductive. 


i  Departmental. 
Factory  at  large. 
General  Expense. 
Selling  Expense. 
Work  Purchased 

Expenditures  are  classified  as  work  purchased,  when  an  outside 
party  is  paid  for  performing  some  special  operation  which  cannot  be 
classified  as  labor  or  material.  If  the  work  was  done  in  the  factory, 
it  would  be  a  labor  cost;  but  since  it  is  not,  it  cannot  properly  be 
classified  as  labor,  especially  when  the  percentage  costs  are  based  on 
the  per  man  hour.  Since  it  cannot  be  classified  with  either  labor  or 
material,  it  should  be  treated  as  an  independent  factor  and  set  up 
by  itself.  If  the  expense  percentages  are  based  on  labor  and  mate- 
rial, it  should  not  be  included  in  the  amount  upon  which  the  per- 
centage charges  are  computed;  but  if  the  percentage  charges  are 
7  89 


go  ACCOUNTING    PRACTICE 

based  on  the  total  prime  cost,  it  should  be  included  before  the  per- 
centage charges  are  computed. 

What  Is  Material? 

There  has  been  considerable  discussion  regarding  this  question, 
and  in  some  cases  it  has  been  vexatious  discriminating  between  mer- 
chandise, material,  and  supplies. 

The  product  of  one  business  may  be  the  material  of  another ;  con- 
sequently, the  same  must  apply  to  a  compound  business,  in  which  case 
the  principle  would  apply  to  departments.  But  it  would  not  be  ex- 
pedient to  record  as  sales  the  product  of  one  department  delivered  to 
another ;  and  even  if  actually  sold,  conditions  might  be  such  that  these 
sales  would  be  a  byproduct  set  up  as  an  offset  to  the  material  cost. 

Shoes  are  the  product  of  which  leather  is  the  material;  leather  is 
the  product  of  which  hides  are  the  material.  If  the  business  was 
simply  making  shoes,  the  material  would  be  leather;  but  if  the  tannery 
was  operated  in  connection  with  the  shoe  factory,  and  tanned  leather 
was  a  considerable  item  of  the  sales,  the  product  of  the  tannery  must 
be  the  raw  material  of  the  shoe  factory. 

Intercharges 

In  a  compound  business,  the  product  of  one  department  delivered 
to  another  as  sales  should  be  treated  as  intercharges,  and  the  analysis 
of  the  sales  and  purchases  should  each  have  a  column  for  inter- 
charges, in  order  to  show  the  amount  of  intercharges  on  each.  The 
amount  of  intercharges  on  the  sales  journal  should  equal  the  inter- 
charges on  the  purchase  journal. 

Supplies 

The  simplest  and  most  satisfactory  method  is  to  treat  as  supplies 
all  articles  used  in  a  general  way  in  the  department,  which  are  not 
a  component  part  of  the  product  and  cannot  be  charged  to  the  orders 
as  a  definite  quantity. 

Prime  Costs 

The  prime  costs  are  labor  and  material.  In  some  cases,  the  ex- 
penses are  based  on  the  labor  only.     The  latter  method  has  been  re- 


COST    SYSTEMS    IN    GENERAL  91 

ceived  with  favor,  when  the  material  cost  varies 'so  extraordinarily 
that  it  would  be  inequitable  to  base  the  expense  cost  on  it. 

Percentage  Costs 

After  the  prime  costs  have  been  determined,  percentages  are  added 
for  expenses ;  these  are  called  the  Percentage  Costs. 

Basis  of  Computations 

In  all  cases  of  similar  import,  the  past  must  be  the  basis  for  the 
future  computations,  and  to  be  accurate,  all  contributing  conditions 
should  be  considered  whether  favorable  or  otherwise.  (See  con- 
densed statements  of  profit  and  loss,  Report  Forms  i  and  2.) 

2.     Kinds  of  Cost  Systems 

There  are  many  kinds  of  cost  systems  and  some  are  combinations 
of  various  methods.  The  following  are  some  of  the  methods  of  keep- 
ing costs: 

(i)  The  cost  system  in  which  the  records  are  kept  according  to 
order  numbers. 

In  this  method,  it  is  customary  to  provide  a  cost  sheet  for  each 
and  every  order  number.  The  cost  sheet  should  be  ruled  so  that  the 
items  will  be  grouped  according  to  the  desired  analysis  and  provision 
made  for  a  summary  of  the  results.  (See  Form  No.  7  for  illustration 
of  ruling.) 

(2)  The  cost  system  in  which  the  records  are  kept  according  to 
departments. 

In  this  method,  a  cost  sheet  is  kept  for  each  department.  The 
cost  sheet  should  be  ruled  so  that  the  items  will  be  grouped  according 
to  the  analysis  and  provision  made  for  a  summary  of  the  results. 
It  should  also  provide  for  a  record  of  the  quantity  of  work  passing 
through  the  department,  according  to  the  unit  of  measurements.  (See 
Form  No.  21  for  illustration  of  ruling.) 

(3)  The  cost  system  in  which  the  records  are  kept  according  to 
the  operations  or  processes. 

In  this  method,  a  cost  sheet  is  provided  for  each  and  every  process. 
The  cost  sheet  should  be  ruled  so  that  the  items  will  be  grouped 


g2  ACCOUNTING    PRACTICE 

according  to  the  analysis,  and  provision  made  for  a  summary  of  the 
results.  It  should  also  provide  for  a  record  of  the  quantity  which 
underwent  the  process  and  the  rate  per  unit  of  measurement.  (See 
Form  No.  21  for  illustration  of  ruling.) 

(4)  The  cost  system  in  which  the  records  are  kept  according  to 
machines. 

This  is  known  as  the  machine  cost  and  the  cost  sheets  are  made 
for  individual  machines  or  groups  of  machines.  The  cost  sheet  should 
be  ruled  so  that  the  items  will  be  grouped  according  to  the  analysis, 
and  provision  made  for  the  summary  of  the  results.  It  should  also 
provide  for  the  record  of  the  results  from  operating  the  machines 
and  the  number  of  hours  in  operation. 

A  rate  is  charged  for  the  time  the  machine  is  occupied.  This 
rate  is  known  as  fhe  **  machine  hour  "  and  is  based  on  the  expense 
of  operating  the  machine,  considering  only  the  number  of  hours  in 
operation.     (See  Form  No.  21  for  illustration  of  ruling.) 


II.     PLANNING  THE   SYSTEM 


1.     Planning  the  Controlling  Accounts 

The  classification  of  the  items,  the  arrangement  of  the  ledger 
accounts,  and  the  method  to  be  adopted  are  the  difficult  features. 

For  this  reason,  I  submit  the  chart  showing  the  grouping  of  ac- 
counts, which  I  entreat  you  to  study  until  your  mind  automatically 
groups  the  accounts  and  arranges  the  control  of  the  operations  as 
described. 

Plan  of  Operation 
Chart  Showing  the  Grouping  of  the  Accounts 


CASH  ACCOUNT 

n             (2)             (3) 

' 

f 

f 

MATERIAL 

LABOR 

EXPENSE 

ACCOUNT 

ACCOUNT 

ACCOUNT 

G) 

(i) 

(6) 

r 

' 

1 

WORK-IN-PROCESS  ACCOUNT 

6) 

PRODUCTION  ACCOUNT 

(5) 

/ 

CASH  ACCOUNT 

93 


94  ACCOUNTING   PRACTICE 

Each  one  of  the  rectangles  shown  in  the  chart  represents  an 
account  on  the  ledger. 

Cash  is  paid  for  material  in  detail  and  the  cash  account  is  credited 
with  the  total,  which  total  is  debited  to  the  material  account.  Toll 
Station  No.  i  is  the  material  column. 

Cash  is  paid  for  labor  in  detail  and  the  cash  account  is  credited 
with  the  total,  which  total  is  debited  to  the  labor  account.  Toll 
Station  No.  2  is  the  labor  column. 

Cash  is  paid  for  expenses  in  detail  and  the  cash  account  is  credited 
with  the  total,  which  total  is  debited  to  the  expense  account.  Toll 
Station  No.  3  is  the  expense  column. 

Material  is  charged  to  the  cost  sheets  for  work  in  process  in 
detail  and  the  material  account  is  credited  with  the  total,  which  total 
is  debited  to  work  in  process  account.     Toll  Station  No.  4. 

Labor  is  charged  to  the  cost  sheets  for  work  in  process  in  detail 
and  the  labor  account  is  credited  with  the  total,  which  total  is  debited 
to  work  in  process  account.     Toll  Station  No.  5. 

Expense  is  charged  to  the  cost  sheets  for  work  in  process  in  detail 
and  the  expense  account  is  credited  with  the  total,  which  total  is 
debited  to  the  work  in  process  account.     Toll  Station  No.  6. 

As  the  work  is  completed,  the  cost  sheets  are  figured  in  detail 
and  the  total  of  the  completed  cost  sheets  is  debited  to  the  produc- 
tion (or  similar  account)  and  credited  to  work  in  process.  Toll 
Station  No.  7. 

Now  study  the  following  concrete  plan  of  operating  the  cost  sys- 
tem No.  I,  and  endeavor  to  comprehend  the  relation  of  the  accounts 
to  each  other  before  studying  the  detail  of  the  items : 

CONCRETE    PLAN    OF   OPERATING   THE    COST    SYSTEM    No.    i 

(i)     Balance  commencing  the  period $17,691 .  83 

(2)  Charges  made  in  detail  to  the  Cost  Sheets,  during  the  period : 

Labor 1721 .60 

Material 4782 .  95 

Expense 649 .  87 

(3)  Total  in  operation  during  period $24,846 .  25 

(4)  Deduct  Cost  Sheets  for  orders  completed  during  the  period. . .  .     10,791 .44 

(5)  Balance  at  end  of  period $14,054.81 

Value  of  Work  in  process  at  the  end  of  period.     List  of  unfinished  Cost 

Sheets  should  equal  this  balance.     This  balance  is  the  balance  for  the  beginning 
of  the  following  week. 


PLANNING    THE    SYSTEM  5,5 

There  are  three  classes  of  expenditures  to  be  considered,  and,  no 
matter  how  they  are  ultimately  subdivided,  you  should  consider  them 
primarily  as: 

Material. 

Labor. 

Expense. 

You  should  study  the  chart  until  your  mind  inadvertently  groups 
them  in  this  manner. 

The  cash  is  paid  for  material,  labor  and  expense;  the  respective 
accounts  on  the  ledger  are  charged  and  the  cash  account  credited. 
The  entry  should  be: 

Material,   Dr $1005.00 

Labor,   Dr 960.00 

Expenses,  Dr 100.00 

To  Cash,  Cr $2065.00 

The  material,  labor  and  expense  are  charged  to  cost  sheets,  which 
are  a  record  of  "  Work  in  Process."  The  amount  so  charged  to  cost 
sheets  is  controlled,  and  the  work  in  process  account  on  the  ledger 
is  charged,  and  the  material,  labor  and  expense  accounts  on  the  ledger 
are  credited.    The  entry  for  same  should  be: 

Work  in  Process  Account,  Dr $7154.42 

To  Material  Account,  Cr $4782.95 

"    Labor  Account,  Cr 1721.60 

"    Expense  Account,  Cr 649.87 

$7154.42     $715442 

When  the  work  is  completed,  the  total  value  of  the  completed 
cost  sheets  is  charged  to  the  production  account  (or  similar  account) 
on  the  ledger  and  credited  to  the  "  Work  in  Process  Account "  on  the 
ledger.    The  entry  should  be : 

Finished  Product  Account,  Dr $10791.44 

To  Work  in  Process  Account,  Cr $10791.44 


96  ACCOUNTING   PRACTICE 

After  examining  the  chart,  it  must  appear  to  you  that  creating 
a  cost  system  revolves  itself  primarily  into  a  matter  of  arranging  the 
control  accounts  and  providing  a  means  of  controlling  the  passages 
from  one  account  to  another. 

The  material  is  delivered  to  the  work  in  process.  What  is  the 
best,  simplest  and  most  practical  method  of  making  a  record  of  the 
delivery,  and  securing  a  competent  record  of  the  material  delivered 
to  work  in  process? 

If  a  requisition  is  made  for  the  material,  the  store  clerk  or  party 
in  charge  of  the  material  could  make  the  necessary  entries  on  the  slip 
for  the  identification  and  price  of  the  material  actually  delivered,  and 
the  requisition  could  be  used  as  a  basis  for  the  charge.  In  fact,  any 
form  of  any  kind,  which  is  a  competent  record  of  the  material 
delivered,  could  be  returned  to  the  cost  department,  to  be  used  as  a 
basis  of  the  charge  for  the  material  on  the  cost  sheet. 

The  forms  for  material  to  be  charged  to  cost  sheets  could  be 
figured  and  totaled  on  an  adding  machine,  and  the  detail  posted  to 
the  cost  sheets  direct  from  the  forms. 

The  labor  is  expended  on  work  in  process.  How  can  a  record  be 
made  of  the  work  which  will  not  only  insure  returns  for  the  expendi- 
ture, but  provide  a  means  of  charging  the  labor  to  the  cost  sheets  for 
work  in  process? 

Study  carefully  the  diflferent  classes  of  time  cards,  and  choose  the 
method  which  appeals  to  you  as  most  adapted  to  the  requirements 
of  the  situation.     (See  Operating  Forms  i  and  2.) 

The  expenses  must  be  added  as  an  additional  or  supplementary 
cost.  What  basis  should  be  employed  to  secure  an  equitable  distri- 
bution of  the  expenses? 

(1)  Work  in  Process  Account  on  the  Ledger 

Work  in  process  account  on  the  ledger  is  the  same  kind  of  account 
as  the  sales  ledger  account  on  the  private  ledger. 

The  sales  ledger  account  is  charged  with  a  total  for  sales  made; 
but  the  items  are  charged  in  detail  to  the  individual  accounts  in  the 
sales  ledger.  Collections  are  credited  in  total  to  the  sales  ledger 
account ;  but  the  items  are  credited  in  detail  to  the  individual  accounts 
on  the  sales  ledger. 


PLANNING    THE    SYSTEM  97 

So  it  is  with  the  cost  system.  Work  in  process  account  is  charged 
with  a  total  for  material,  but  the  items  in  detail  are  charged  to  the 
individual  cost  sheets.  The  labor  is  charged  in  total  to  the  work  in 
process  account  on  the  ledger;  but  the  items  are  charged  in  detail  to 
the  individual  cost  sheets.  The  expense  provision  is  charged  in  total 
to  the  work  in  process  account  on  the  ledger;  but  the  items  in  detail 
are  charged  to  the  cost  sheets. 

If  a  list  is  made  of  the  accounts  in  the  sales  ledger,  the  total  of 
the  balances  (trial  balance)  in  the  sales  ledger  will  equal  the  balance 
of  the  sales  ledger  account  on  the  private  ledger.  So  it  is  with  the 
cost  system ;  if  a  schedule  is  made  of  the  cost  sheets  which  are  uncom- 
pleted, the  total  of  the  uncompleted  cost  sheets  will  equal  the  balance 
of  the  work  in  process  account  on  the  ledger. 

To  sum  the  matter  up  briefly :  the  work  in  process  account  on  the 
ledger  is  simply  a  ledger  account  controlling  the  work  in  process. 

(2)  The  Material  Account  on  the  Ledger 

The  material  account  on  the  ledger  is  an  account  controlling  all 
material  on  hand,  which  has  not  been  delivered  to  work  in  process 
of  manufacture,  excepting  articles  classified  as  manufacturing  ex- 
pense supplies. 

The  balance  of  the  material  account  should  be  the  value  of  the 
inventory  of  the  material  and,  when  an  inventory  is  taken  to  prove 
the  work,  the  physical  inventory  of  material  should  be  the  equivalent 
of  the  balance  of  the  ledger  account. 

The  material  account  may  be  subdivided  into  as  many  accounts 
as  desirable;  but  the  disposition  to  subanalyze  is  generally  carried 
to  extremes,  the  result  being  an  enormous  amount  of  labor  without 
any  valuable  return,  and  quite  often  the  main  objects  are  swamped 
in  a  mass  of  valueless  detail. 

Under  the  heading  material  could  be  grouped  every  conceivable 
article  used  in  the  factory  which  is  delivered  under  control;  but  it 
is  unadvisable  to  do  so. 

Discriminate  between  supplies  and  material  by  classifying  as  mate- 
rial only  articles  that  become  a  component  part  of  the  product. 

Experience  has  demonstrated  this  to  be  the  most  practical  plan. 


g8  ACCOUNTING    PRACTICE 

(3)  Pay  Roll  Account  on  the  Ledger 

The  pay  roll  account  is  an  account  to  which  all  labor  is  charged. 
The  labor  account  should  be  absorbed  by  the  cost  system,  unless 
advances  are  made  or  advance  charges  made  for  wages. 

(4)  Expense  Accounts  on  the  Ledger 

The  expense  accounts  on  the  ledger  may  be  subdivided  into  as 
many  accounts  as  it  is  deemed  expedient.  The  accounts  should  be 
grouped  or  analyzed,  so  that  it  is  possible  to  determine  ( i )  the  depart- 
mental expenses,  (2)  the  factory  expenses,  (3)  the  general  expenses, 
and  (4)  the  selling  expenses. 

The  total  of  the  expense  accounts  should  not  exceed  the  amount 
provided  to  meet  expenses  (by  charges  made  to  cost  sheets),  unless 
some  payment  has  been  made  for  advances. 

The  credits  to  the  expense  accounts  should  be  sufficient  to  cover  all 
accrued  expenses  and  transfer  the  expenses  to  the  cost  sheets. 

2.  Method  of  Operation 

(1)  Balance  of  Work  in  Process  Account  at  the  Beginning  of  the 

Week.      (See  plan  of  operating  system  No.  2.) 

The  balance  of  the  work  in  process  account  on  the  ledger  should 
be  the  value  of  the  production  in  various  stages  of  manufacture,  as 
shown  by  the  cost  sheets,  and  a  schedule  of  the  cost  sheets  at  any 
closing  period  should  equal  the  balance  shown  by  the  ledger  account. 
Work  in  process  account  is  the  account  representing  the  entire  prod- 
uct in  process  of  manufacture.  It  may  be  subdivided  into  depart- 
ments, but  this  is  a  supplementary  matter  to  be  treated  hereinafter. 

(2)  Charges  Made  to  Cost  Sheets 

The  charges  made  to  the  cost  sheets  should  be  controlled  and 
analyzed,  so  that  the  total  amount  is  known  and  also  an  analysis  of 
the  total. 

The  credit  to  material  account  for  the  charges  made  to  cost  sheets 
should  reduce  the  material  account  to  the  inventory  value  of  same. 

The  credit  to  labor  account  should  offset  the  account  for  pay 
roll  on  the  ledger. 


PLANNING   THE    SYSTEM 


99 


OPERATION   AND   CONTROL   OF   COST   SYSTEM   No.    2. 


Ledger  Accounts 

Work  in 

Process. 

Total 

Analysis  of 

Charges  to  Cost  Sheets 

Material 

Labor 

Expense 

(0 

(2) 

Balance  of  work  in  process 
account    at    the    begin- 
ning of  the  week 

Charges  made  to  the  cost 
sheets  during  week 

»6739i5 
2600.00 

$4150-75 
1 100.00 

$1910.60 
950.00 

$675.80 
550.00 

(3) 

Total  in  operation  during 
week 

933715 
2100.00 

525075 
1020. 15 

2860.60 
829.30 

1225.80 
250.5s 

(4) 

Cost  sheets  for  completed 
orders 

(5) 

Balance  for  work  in  proc- 
ess account  at  the  end 
of  the  week 

7237. IS 

4230.60 

2031.31 

975-25 

(3)  Total  in  Operation 

This  total  shows  the  value  of  work  in  process  which  was  in  oper- 
ation during  the  week.  It  does  not  mean  that  the  work  in  process  at 
any  time  during  the  week  was  worth  that  amount,  as  the  majority  of 
it  may  have  been  delivered  during  the  early  part  of  the  week. 

(4)  Completed  Cost  Sheets 

The  cost  sheets  should  be  scheduled  as  they  are  completed  and 
an  analysis  made  of  them  to  determine  the  amount  of  labor,  material 
and  expense  which  was  charged  to  them.  The  analysis  of  completed 
cost  sheets  is  required  only  for  proving,  and  is  not  essential  unless 
you  desire  to  prove  each  class  of  entries,  as  shown  on  the  plan  of 
operating  No.  2. 


(5)  Balance  of  Work  in  Process  Account  at  the  End  of  the  Week 

The  balance  of  work  in  process  at  the  end  of  the  week  is  similar 
to  the  balance  at  the  beginning  (No.  i)  and  this  balance  at  the  end 
of  the  week  is  the  balance  for  the  beginning  of  the  next  succeeding 
week. 


lOO  ACCOUNTING   PRACTICE 


Proof  of  Work 

The  cost  sheets  are  Hsted  at  the  beginning  of  the  period;  charges 
are  made  to  the  cost  sheets  during  the  period ;  all  cost  sheets  for  com- 
pleted orders  are  scheduled  and  analyzed  according  to  material,  labor 
and  expense  (or  any  analysis  planned)  and  the  total  is  deducted 
(see  No.  4  of  plan). 

The  balance  of  the  cost  sheets  should  then  be  listed  on  the  same 
form  and  the  result,  if  correct,  will  be  the  total  of  the  uncompleted 
cost  sheets  (see  No.  5),  and  an  analysis  showing  the  amount  of  labor, 
material  and  expense. 

The  object  of  operating  the  cost  system  according  to  the  analysis 
of  the  charges  is:  It  gives  a  proof  of  the  work  in  such  a  way,  that 
if  an  error  was  made  in  the  work,  it  will  not  be  necessary  to  go 
over  the  entire  work  but  only  the  part  in  which  the  error  occurred. 
If  the  error  is  in  the  pay  roll  charges,  examine  them ;  if  in  the  mate- 
rial, examine  the  material;  if  in  the  expenses,  examine  the  expense. 

Basis  of  Percentage  Charges 

It  is  inadvisable  to  base  expenses  on  a  period  of  a  week  or  a 
month,  as  this  necessitates  carrying  over  from  one  period  to  another  a 
surplus  or  deficit. 

The  percentage  charges,  under  normal  conditions,  should  be  based 
on  the  past  year  or  years.  Therefore,  the  business  should  be  sub- 
jected to  rigid  scrutiny,  and  all  contributing  conditions  considered. 

Idle  Periods 

The  fixed  expenses  of  a  business,  or  department  of  a  business, 
are  continuous,  whether  in  operation  or  not,  and  the  expenses  of  pres- 
ervation during  an  inactive  period  is  as  much  a  cost  of  operation 
chargeable  to  an  active  period,  as  the  fixed  expenses  of  the  active 
period;  for  it  is  necessary  to  preserve  the  integrity  of  the  business 
during  the  inactive  period,  in  order  to  make  possible  its  operation 
during  the  active  period. 

To  illustrate:  If  a  business  with  an  annual  rental  of  $12,000  was 
of  a  character  prohibiting  operation  four  months  during  the  year,  it 
would  be  deceptive  and  inequitable  to  compute  costs  on  a  basis  of 


»     1 

>  J         J  1       •> 


>       ?     ,» 


PLANNING   THE    SYSTEM''-"    '-' ^''  VcjV 

$i,ooo  per  month,  because  (other  elements  being  accurate)  the  results 
would  show  an  additional  loss  of  $4,000  per  annum. 

Verifying  Percentages 

In  a  cost  system  where  the  percentage  charges  are  based  on  annual 
statements,  the  provisions  made  for  such  expenses  should  be  so 
arranged,  that  comparisons  can  be  made  monthly  with  the  ledger 
accounts  for  such  expenditures. 

Provisions  for  Expense  Account 

When  the  cost  system  results  are  incorporated  on  the  general 
ledger,  it  has  proven  very  satisfactory  to  arrange  the  expense  account 
so  that,  when  a  trial  balance  is  taken,  the  accounts  are  in  order,  mak- 
ing it  possible  to  foot  the  expenses,  and,  instead  of  crediting  the  ex- 
pense accounts  with  the  percentage  charges,  which  were  made  on 
the  cost  sheets,  allow  the  accounts  to  stand  in  their  integrity,  making 
suitable  provision  for  unexpired  expenses,  depreciation  and  long  term 
expenses  to  insure  an  accurate  record  of  the  expenses  which  have 
actually  expired;  then  accounts  should  be  set  up  in  the  ledger  to 
show  the  provisions  made  to  meet  them. 

3.  The  General  Books  and  a  Cost  System 

The  general  books  can  be  made  to  cooperate  with  the  cost  system 
and  matters  simplified  by  arranging  the  purchases  for  account  of 
material  and  expenses  to  meet  the  requirements  of  the  cost  system. 

If  the  general  books  are  designed  so  as  to  give  you  all  the  infor- 
mation required  for  the  cost  system,  it  is  not  advisable  to  make  any 
change,  especially  at  this  time. 

Production  Ledger 

A  production  ledger  can  be  kept  as  a  part  of  the  cost  system  and 
only  the  accounts  required  for  the  cost  system  kept  in  same,  a  bal- 
ance being  entered  in  an  account  for  general  ledger  to  establish  the 
equilibrium  of  the  production  ledger. 

The  accounts  in  the  production  ledger  would  be  as  follows : 
General  Ledger  Account. 
Work  in  Process  Account. 


i}^^^'^'^  '' '  "'  '^'-ACCOUNTING    PRACTICE 

Material  Account. 

Labor  Account. 

Production  Account. 

Provision  for  Departmental  Expenses. 

Provision  for  Factory  Expenses. 

Provision  for  General  Expenses. 

Provision  for  Selling  Expenses. 

The  general  ledger  account  would  have  a  balance,  necessary  to 
establish  the  equilibrium  of  the  production  ledger. 

The  work  in  process  account  would  be  the  record  of  work  in 
process  as  described  heretofore. 

The  labor  account  would  be  the  provision  made  to  cover  the  cost 
of  labor  and  would  be  the  opposite  of  the  balance  on  the  general 
ledger. 

The  provision  for  department  expenses  should  be  a  credit  and  the 
equivalent  of  the  total  debits  of  the  accounts  in  the  general  ledger  for 
department  expenses. 

The  provision  for  factory  expenses  should  be  a  credit  and  the 
equivalent  of  the  total  debits  of  the  accounts  in  the  general  ledger  for 
factory  expenses. 

The  provision  for  general  expenses  should  be  a  credit  and  the 
equivalent  of  the  total  debits  of  the  accounts  in  the  general  ledger 
for  general  expenses. 

The  provision  for  selling  expenses  should  be  a  credit  and  the 
equivalent  of  the  total  debits  of  the  accounts  in  the  general  ledger  for 
selling  expenses. 

Thus  it  is  evident,  the  production  ledger  is  the  reverse  of  the 
general  ledger;  and  a  trial  balance,  showing  the  results  taken  from 
the  ledgers,  when  placed  so  the  accounts  are  opposite  each  other, 
should  show  results  which  offset  each  other. 

4.  How  to  Plan  the  Cost  System 

(i)  Examine  the  general  books  and  prepare  a  condensed  state- 
ment of  the  profit  and  loss  for  the  year  or  several  years  (see  Re- 
port Forms  Nos.  i  to  9).  This  is  to  be  the  basis  upon  which 
the   percentage  charges   are  made,   and   will   show  the   ratio   of  the 


PLANNING   THE    SYSTEM  103 

various  elements  of  cost  to  the  whole  cost,  to  the  sales  and  to  each 
other. 

The  information  required  to  prepare  the  condensed  statement  of 
profit  and  loss  can  generally  be  obtained  from  the  trial  balance  taken 
from  the  books  before  closing. 

While  making  the  examination  of  the  general  accounts,  it  is 
advisable  to  investigate  the  material  accounts  and  get  some  idea  of 
the  way  it  has  been  customary  to  handle  material  on  the  general 
books.     Note  how  the  invoices  are  approved,  entered  and  paid. 

(2)  Look  over  the  plant,  request  some  one  to  show  you  over 
who  is  conversant  with  the  various  operations  and  processes,  who  can 
commence  at  the  beginning  and  follow  the  production  through  the 
various  stages  and  give  you  an  intelligent  description  of  it  so  that 
you  can  (a)  comprehend  the  general  scheme  of  operation,  (b)  get 
an  idea  of  the  methods  of  delivering  material,  (c)  the  way  the  mate- 
rial is  worked,  (d)  the  records  of  the  work  which  are  made  in  the 
factory,  (e)  the  departments  and  object  of  each,  (/)  the  process 
and  operations  of  each,  (g)  the  records  of  labor,  (It)  the  time  con- 
sumed to  perform  the  operations,  (i)  the  time  the  product  requires 
from  start  to  finish,  (;)  the  packing  of  the  product,  and  (k)  the 
delivery. 

Commence  at  the  place  where  the  raw  material  is  received,  and 
follow  it  through  every  process  until  delivered. 

When  looking  over  the  plant,  group  in  your  mind  all  persons 
doing  work  of  a  similar  character,  and  do  not  be  dismayed  by  a  large 
force  of  employees. 

Do  not  entertain  thoughts  of  the  magnitude  of  a  plant,  for  it  is 
easier  to  put  a  system  in  a  plant  employing  two  thousand  persons, 
than  it  is  to  put  a  system  in  a  plant  employing  twenty.  Consider  for 
your  purposes  one  thousand  persons  doing  the  same  thing  as  one 
person ;  learn  to  do  this  and  you  have  made  a  step  in  advance. 

Make  notes  of  the  various  operations,  the  time  consumed  and  the 
number  so  employed. 

(3)  Consider  the  various  methods  of  operating  cost  systems  and 
decide  whether  it  would  be  advisable  to  operate  the  system  according 
to  individual  orders,  departments,  or  otherwise.  If  you  cannot  decide 
upon  the  general  outline  or  control,  examine  the  departments  in  detail 


I04  ACCOUNTING    PRACTICE 

and  prepare  a  plan  of  keeping  costs  for  each;  then  decide  upon  the 
control. 

(4)  Draw  up  a  rough  outline  of  your  plans,  seclude  yourself 
some  place  where  you  are  sure  you  will  not  be  disturbed,  and  go 
over  your  plans  carefully  to  make  sure  the  foundation  is  sound. 

(5)  Work  up  the  details  one  at  a  time,  and  be  sure  to  make  care- 
ful notes  of  your  prospective  methods  and  reasons  for  them. 

Material 

Examine  carefully  everything  in  connection  with  the  material,  its 
value,  quantities,  stores,  issue,  and  formulate  a  plan  of  controlling  it. 
As  the  material  is  delivered  to  work,  it  should  be  charged.  Devise 
a  method  of  making  the  charge  and  the  means  of  ascertaining  the 
cost  of  the  material  at  which  the  charge  is  to  be  made. 

The  cost  value  of  the  material  is  the  purchase  value  plus  charges 
for  storage,  freight,  etc.;  but  this  is  not  generally  used. 

Labor 

Examine  carefully  the  labor  and  see  if  it  is  possible  to  make  a 
record  of  the  cost  without  expecting  too  much  of  the  employee. 

Decide  upon  the  style  of  time  cards.     (See  Forms  Nos.  i  and  2.) 

Consider  the  nonproducers  and  decide  whether  their  time  should 
be  prorated  over  the  whole  or  special  operations. 

As  the  labor  is  performed  the  record  of  the  time  is  made  on  the 
form  provided,  and  the  charge  to  the  cost  sheet  is  based  on  that. 

There  are  two  classes  of  labor,  productive  and  nonproductive. 

Productive  labor  is  the  labor  chargeable  to  specific  costs,  and 
nonproductive  is  all  labor  not  chargeable  to  specific  costs,  which  must 
be  prorated  over  the  items  of  productive  labor. 

The  nonproductive  labor  should  be  prorated  over  the  productive 
labor  if  your  plans  require  the  full  cost  of  labor. 

Wages  of  Foremen 

The  question  of  how  to  treat  the  wages  of  the  foreman  has  been 
vexatious  at  times,  but  a  solution  is  easy  if  the  right  principle  is 
applied. 

When  the  foreman  is  the  brains  of  the  employees  under  his  super- 


PLANNING   THE    SYSTEM  105 

vision,  his  wages  are  a  part  of  theirs,  because  he  supplies  what  is 
deficient  in  them.  Therefore,  if  you  are  paying  ten  employees  $15.00 
per  week  and  paying  a  foreman  $50.00  a  week  to  supervise  their 
work,  each  one  of  the  employees  cost  $20.00  per  week. 

(6)  After  preparing  the  plans  for  making  and  collecting  the 
records  in  the  factory,  it  is  necessary  to  design  the  forms  for  the 
cost  department  to  use  in  computing  the  records. 

Factory  Records  ^ 

Do  not  burden  the  employee  with  records,  remember  he  is  not  a 
bookkeeper  and  is  not  supposed  to  keep  accounts.  Strive  to  make  his 
end  as  simple  and  easy  as  possible. 

In  a  well-regulated  factory,  the  basis  of  a  cost  system  already 
exists,  and  it  is  simply  a  matter  of  gathering  the  necessary  figures 
and  arranging  the  control  of  the  elements  of  cost,  so  that  the  costs 
may  be  determined  and  the  gross  results  known. 

Every  business  has  developed  certain  records  and  systems  which 
are  valuable  and  suitable  to  their  needs;  for  this  reason  it  is  ex- 
tremely bad  policy  to  predetermine  the  system  simply  because  it  was 
successful  elsewhere.  It  should  be  your  purpose  to  examine  care- 
fully every  little  detail  of  the  business,  in  order  to  incorporate  old 
methods  in  the  new  system. 

The  custom  of  prearranging  a  cost  system,  and  entering  a  factory 
with  the  determination  of  making  the  factory  conform  to  the  system, 
is  unreasonable  and  has  caused  more  disappointment  to  all  concerned 
than  anything  else,  not  to  mention  the  excessive  financial  loss  entailed. 

Work  Order 

Where  a  cost  system  is  operated,  orders  should  be  provided  for 
all  work  of  general  character,  such  as  repairs,  construction,  etc.  This 
is  to  identify  the  work  and  make  it  possible  to  determine  the  cost. 
These  orders  are  called  work  orders  to  distinguish  them  from  the 
regular  orders. 

Planning  Charges 

When  planning  how  to  make  the  charge  to  the  cost  sheet  for 
labor   or   material,   ascertain   your   objective   points,   and   devise   the 


io6  ACCOUNTING    PRACTICE 

simplest  and  shortest  way  of  getting  the  charge  from  one  point  to 
the  other  point. 

By  that  I  mean — do  not  confine  yourself  to  set  rules  and  argue 
that,  being  delivered  from  a  storeroom,  an  issue  book  miist  be  kept 
in  the  storeroom;  that  this  book  must  be  analyzed  and  the  result 
credited  to  stores;  that  a  journal  must  be  kept  from  which  to  make 
the  charges  to  the  cost  sheets,  etc.  That  is  all  very  good  if  the  firm 
desire  a  mass  of  valueless  detail  and  have  no  regard  for  expense. 
But  the  majority  of  business  men  only  care  for  results  and  will  be 
just  as  well  satisfied  if  you  use  the  delivery  sHp,  which  might  also 
be  the  requisition,  and  if  the  cost  system  records  are  made  on  it;  you 
can  get  just  as  satisfactory  results  by  simply  listing  the  slips  on  an 
adding  machine  and  making  the  charge  to  the  cost  sheets  direct  from 
the  delivery  slip. 

Machine  Shop  Expense 

The  maintenance  of  a  machine  shop  operated  in  connection  with 
a  large  factory  or  mill,  can  be  covered  by  a  percentage  to  be  added 
to  cover  the  expense  of  it,  unless  the  machine  shop  is  occupied  with 
some  work  not  chargeable  to  expense.  If  the  machine  shop  is  not 
essential  to  any  product  or  department,  it  should  not  be  considered 
an  expense  against  it. 

Factory  Expenses  and  Supplies 

The  author  believes  that  the  most  satisfactory  solution  of  how  to 
handle  the  cost  of  factory  expenses  and  supplies  is  to  base  the  charge 
on  the  annual  expense  incurred,  and  add  a  percentage  to  cover  it. 

Heat,  Light  and  Power 

The  maintenance  of  a  heat,  light  and  power  plant  should  be 
charged  according  to  the  requirements  of  the  departments,  and  a  per- 
centage based  on  the  cost  of  the  previous  year  added  to  cover  it. 

Perpetual  Inventory 

It  was  always  deemed  absolutely  essential  to  a  cost  system  to  have 
a  storeroom,  and  to  systematically  issue  material  in  order  to  obtain  a 
record  of  it. 


PLANNING    THE    SYSTEM  107 

In  fact,  the  storeroom  and  cost  system  have  been  synonymous, 
the  storeroom  being  considered  so  important  to  a  cost  system,  that 
its  estabHshment  was  the  first  consideration. 

The  following  method  devised  by  the  author  eliminates  the  neces- 
sity of  a  storeroom,  and,  while  it  provides  excellent  records  of  the 
material  without  one,  it  is  valuable  when  operated  in  conjunction 
with  the  storeroom. 

Registering  Material 

Everything  is  registered  in  the  receiving  record  (made  in  dupli- 
cate) when  received,  without  regard  to  the  character  of  the  article. 
This  register  number  is  a  mark  of  identity  and  is  put  on  the  goods  in 
some  manner  which  enables  the  number  to  be  characterized  on  sight 
as  the  register  number.  The  register  number  is  placed  on  the  invoice 
when  the  invoice  is  approved  by  the  receiving  clerk;  it  is  placed  on 
all  books  of  record  where  the  entry  for  the  invoice  is  made  and 
placed  in  the  ledger  account  which  keeps  a  record  of  the  purchases. 
These  numbers  are  entered  into  the  receiving  book  in  their  numerical 
order,  and  each  lot  receives  a  number.  For  receiving  record  form  see 
Form  No.  3. 

If  several  classes  of  articles  are  received  in  one  lot,  separate  num- 
bers may  be  assigned  to  each  class.  The  first  number  might  be  lumber, 
the  next  oil,  the  next  office  supplies,  etc.  This  number  being  placed 
on  the  case  or  package  or  object,  is,  as  stated,  a  mark  of  identity; 
and  when  passing  through  the  factory,  if  question  arises  regarding 
any  unopened  case,  information  regarding  the  case  can  be  obtained 
instantly  by  referring  to  the  number  on  the  receiving  record. 

When  the  invoices  are  approved,  the  full  details  of  the  articles 
should  be  entered  on  the  receiving  record,  which  is  used  for  refer- 
ence. If  an  inventory  is  made,  the  numbers  are  an  index  to  the  prices 
and  indicate  the  time  the  material  came  into  the  factory.  These 
numbers  are  used  in  keeping  the  stock  records,  and  are  entered  on  the 
delivery  slip  for  charge  to  work  in  process.  The  number  provides  a 
means  by  which  the  cost  department  can  price  the  delivery  slips  at 
actual  purchase  prices. 

Charges  for  freight,  brokerage,  etc.,  which  are  an  additional  cost 
of  merchandise  can  be  made  to  the  merchandise  account  in  total,  and 


io8  ACCOUNTING    PRACTICE 

posted  in  detail  to  the  record  on  the  stock  card,  thus  insuring  a  charge 
for  material  at  full  cost. 

The  charges  made  to  the  cost  sheets  should  show  these  numbers, 
and  any  question  regarding  the  material  can  be  referred  instantly  to 
the  original  invoice,  so  that  the  net  results  from  specific  lots  of  mate- 
rial become  evident  without  keeping  a  special  record. 

A  stock  card  or  suitable  record  of  each  lot  can  be  kept  according 
to  these  numbers  and  complete  record  of  stock  made ;  these  are  indis- 
putable because  they  are  supported  by  the  invoices  and  cost  sheets. 
The  stock  card  can  be  made  out  from  the  invoice  after  it  is  approved 
by  the  receiving  clerk. 

This  provides  a  means  of  establishing  a  perpetual  inventory  in 
detail  which  requires  very  little  work.  It  establishes  a  common  iden- 
tity to  material  which  is  used  by  all  departments  in  the  factory  and 
office.  It  makes  it  possible  to  keep  in  close  touch  with  the  purchasing 
agent  and  keep  advised  regarding  his  judgment  in  making  purchases. 

Results  of  Operating  the  Cost  System 

The  results  of  the  operation  of  the  cost  system  should  be  presented 
in  a  simple  statement,  which  can  be  conveniently  analyzed  and  veri- 
fied quickly,  by  reference  to  records  which  are  unquestionable. 

5.    Correct  Foundation  for  Cost  Figures  and  Reports 

Percentage  Costs  in  General 

The  most  common  error  in  figuring  costs  is  to  prepare  a  wrong 
basis.  To  obviate  the  disappointment  which  must  inevitably  result 
from  a  wrong  basis,  the  author  suggests  making  a  condensed  state- 
ment of  profit  and  loss.     (See  Report  Forms  Nos.  i  and  2.) 

When  the  prime  costs  are  labor  and  material,  divide  the  total 
expenses  to  be  provided  for,  by  the  total  of  the  labor  and  material. 
This  gives  the  percentage  to  be  added  to  labor  and  material  for  such 
expenses. 

Always  use  as  a  basis  the  total  labor  as  per  pay  roll  and  increase 
the  detail  amount  by  the  percentage  for  non-productive  labor  before 
computing  the  percentage  charges. 

Study  carefully  the  condensed  statement  of  profit  and  loss  (Report 


PLANNING   THE    SYSTEM  109 

Form  No.  i)  and  the  relative  percentage  of  the  various  elements  of 
costs. 

The  percentage  to  be  added  to  the  cost  of  (i)  material  and  (2) 
labor  to  provide  for  (3)  manufacturing  and  (4)  general  expenses 
would  not  be  12^  because  the  expenses  are  12^  of  the  manufacturing 
cost.  The  total  percentages  of  the  expenses  divided  by  the  total 
percentages  for  labor  and  material  would  give  the  percentage  to  be 
used. 

Hypothesis: 

(3+9)^(57  +  31)  =  13.6% 
($10,693.77  +  $30,766.55)  -f-  (198,551.28  +  107,61 1.43)  -  13.6% 

The  cost  of  manufacturing  being  determined,  the  provision  for 
selling  expenses  (where  selling  expenses  are  based  on  sales)  and  the 
provision  for  profits  should  be  made  by  dividing  the  manufacturing 
cost  by  the  percentage  the  manufacturing  cost  is  to  be  of  the  sales, 
and  marking  off  two  points. 

Hypothesis: 
Manufacturing  Cost  X  100 


Percentage  Manufacturing  Cost  is  of  Sales 


=   Price  to  Sell. 


In  a  compound  business,  the  percentages  of  the  elements  of  cost 
are  affected  by  the  trading  department  of  the  business.  The  expense 
ratios  should  be  smaller,  because  the  trading  department  assists  in 
carrying  the  expense  loading. 

To  determine  the  percentages  which  the  manufacturing  costs  are 
of  the  sales ;  first  compute  the  percentages  the  elements  of  cost  are 
of  the  manufacturing  cost;  next  compute  the  percentage  the  cost  of 
sales  is  of  the  sales. 

Multiply  the  percentage  the  cost  of  sales  is  of  the  sales,  by  the 
percentage  the  manufacturing  expense  is  of  the  manufacturing  cost, 
and  the  result  will  be  the  percentage  the  expense  is  of  the  selling 
value.     The  same  applies  to  labor  and  material. 

Report  Form  No.  3 

This  is  a  condensed  statement  of  the  profit  and  loss  of  a  simple 
trading  business. 


no  ACCOUNTING    PRACTICE 

The  important  features  of  the  busmess  are  as   follows: 

(i)  The  net  cost  of  the  merchandise, 

(2)  The  expenses  of  conducting  the  business, 

(3)  The  expenses  of  selling,  and 

(4)  The  net  sales. 

In  preparing  a  report  of  such  a  business,  it  is  not  proper  to  charge 
any  portion  of  the  general  expenses  to  selling  expenses.  Confine  the 
selling  expenses  entirely  to  expenditures  chargeable  directly  to  selling 
expense. 

Report  Form  No.  4 

This  is  a  condensed  statement  of  the  profit  and  loss  of  a  manu- 
facturing business  disposing  of  its  product  through  selling  merchants. 
The  important  features  of  the  business  are  as  follows: 

(i)  The  cost  of  material, 

(2)  The  cost  of  labor, 

(3)  The  expenses  of  manufacturing, 

(4)  The  expenses  of  conducting  the  business, 

(5)  The  cost  of  the  manufactured  product, 

(6)  The  expenses  of  selling,  and 

(7)  The  net  sales. 

In  preparing  a  report  of  such  a  business,  it  is  not  proper  to  charge 
any  portion  of  the  general  expenses  to  manufacturing  expense  or 
selling  expense. 

The  prime  business  of  the  company  is  manufacturing  and  the 
expenses  are  all  chargeable  to  manufacturing  cost,  except  expendi- 
tures chargeable  directly  to  selling  expenses,  such  as  advertising,  com- 
mission, brokerage,  etc.,  paid  in  addition  to  the  regular  commission 
and  guarantee. 

Report  Form  No.  5 

This  is  a  condensed  statement  of  the  profit  and  loss  of  a  business 
which  purchases  merchandise  in  addition  to  manufacturing  it,  but 
does  not  prepare  the  inventories  to  show  the  value  of  the  merchan- 
dise separate  from  the  material. 


PLANNING    THE    SYSTEM  m 

This  form  is  submitted  to  show  the  method  of  entering  the  mer- 
chandise purchases,  and  arriving  at  the  cost  of  material  and  mer- 
chandise consumed  to  produce  the  sales. 

The  important  features  of  the  business  are  as  follows: 

(i)  The  cost  of  merchandise  and  material, 

(2)  The  cost  of  labor, 

(3)  The  expenses  of  the  factory, 

(4)  The  expenses  of  conducting  the  business, 

(5)  The  expenses  of  selling,  and 

(6)  The  net  sales. 

Report  Form  No.  6 

This  is  a  condensed  statement  of  the  profit  and  loss  of  a  com- 
pound business.  The  prime  division  of  the  business  is  manufactur- 
ing and  the  selling  is  only  incidental. 

The  important  features  of  the  business  are  as  follows: 

(i)  The  material  consumption,  J%^ 

(2)  The  cost  of  material,  ^   ^^9^ 

(3)  The  cost  of  labor, 

(4)  The  expenses  of  manufacturing, 

(5)  The  manufacturing  cost  of  production, 

(6)  The  cost  of  sales, 

(7)  The  expenses  of  conducting  the  business, 

(8)  The  expenses  of  selling, 

(9)  The  sales  of  waste,  and 
(10)  The  net  sales  of  merchandise. 

This  form  is  submitted  to  illustrate  the  method  of  determining 
the  cost  of  the  production,  and  relation  of  sales  of  waste  to  the  con- 
sumption of  material. 

The  sales  of  waste  are  an  oflFset  to  the  material  consumption  and 
should  be  deducted  from  the  material  consumption  to  determine  the 
cost  of  material. 

Classify  as  selling  expenses  all  expenditures  which  could  be  elimi- 
nated if  the  sales  were  made  through  selling  agents. 

If  a  selling  division  is  maintained  and  the  general  expenses  are 
prorated   over   the   manufacturing   and    selling   divisions,    show    the 


112  ACCOUNTING    PRACTICE 

amount  so  charged  separately  from  the  regular  division  charges  and 
also  show  the  basis  upon  which  the  expenses  are  prorated. 

Report  Form  No.  7 

This  is  a  condensed  statement  of  the  profit  and  loss  of  a  furni- 
ture business  which  buys  rough,  unfinished  parts,  finishes  them  and 
sells  the  finished  furniture. 

The  important  features  of  the  business  are  as  follows: 

(i)  The  cost  of  sales, 

(2)  The  expense  for  salary  and  wages, 

(3)  The  other  expenses  of  conducting  the  business, 

(4)  The  whole  cost,  and 

(5)  The  net  sales. 

The  form  is  submitted  to  show  the  method  of  setting  up  labor 
under  such  conditions. 

When  labol-  is  an  element  of  cost  included  in  the  inventory  values 
of  a  trading  business,  such  labor  should  be  set  up  as  part  of  the  cost 
of  the  merchandise,  before  deducting  the  inventory  for  the  end  of  the 
period. 

Report  Form  No.  8 

This  is  a  condensed  statement  of  the  profit  and  loss  of  a  complex 
trading  business. 

The  important  features  of  the  business  are  as  follows: 

(i)  The  cost  of  material  and  merchandise, 

(2)  The  cost  of  labor  (when  an  added  cost), 

(3)  The  expense  for  salary  and  wages, 

(4)  The  other  expenses  of  conducting  the  business, 

(5)  The  whole  cost,  and 

(6)  The  net  sales. 

The  form  is  submitted  to  show  the  method  of  setting  up  labor  in 
a  trading  account,  when  labor  is  an  element  of  the  cost  of  sales. 

When  labor  is  an  added  cost  included  in  the  sale  as  part  of  the 
sales,  such  labor  should  be  set  up  in  the  trading  account  after  show- 
ing the  cost  of  the  material. 


PLANNING   THE    SYSTEM  113 

Report  Form  No.  9 

This  is  a  condensed  statement  of  profit  and  loss  of  a  simple  trad- 
ing business. 

The  important   features  of  the  business  are  as   follows: 

(i)  The  cost  of  sales, 

(2)  The  expenses  of  conducting  the  business, 

(3)  The  expenses  of  selling,  and 

(4)  The  net  sales. 

This  form  is  submitted  to  show  the  method  of  setting  up  duty, 
foreign  freight,  etc.,  in  the  trading  account. 

The  above  items,  being  part  of  the  purchase  cost  included  as  in- 
ventory values  should  be  set  up  as  part  of  the  total  charges,  before 
deducting  the  inventory  for  the  end  of  the  period. 


III.    PERCENTAGE  COSTS 
1.    Determining  Percentages 

After  the  material  and  labor  cost  has  been  computed,  for  either 
the  department  or  the  plant  at  large,  a  percentage  is  added  to  said 
cost  to  cover  the  expenses.  More  disappointment  is  caused  by  making 
errors  in  determining  the  percentages  to  be  employed  than  in  any 
other  way.  Extreme  care  should  therefore  be  used  when  preparing 
the  percentages. 

Percentage  of  Expense  Based  on  Labor  Cost 

If  the  percentage  of  the  expense  is  to  be  based  on  the  labor 
charge,  ascertain  the  amount  of  the  labor  and  expenses  for  the  year, 
and  divide  the  total  expense  by  the  total  labor. 

Hypothesis: 
Expenses  -^  Labor  =  Percentage. 

This  percentage  is  the  ratio  of  the  expenses  to  the  gross  labor 
charge.  Consequently,  if  the  charge  to  the  cost  sheet  is  for  produc- 
tive labor  only,  the  productive  labor  must  be  increased  by  the  per- 
centage for  nonproductive  labor.  To  determine  the  percentage  to 
be  added  to  productive  labor  for  nonproductive  labor,  divide  the 
nonproductive  labor  by  the  productive  labor. 

Hypothesis: 
Nonproductive  Labor  -^  Productive  Labor  =  Percentage. 

The  percentage  is  the  ratio  of  the  nonproductive  labor  to  the  pro- 
ductive labor. 

Selling  Expenses 

The  cost  of  manufacture  should  be  determined  before  provision 
is  made  for  selling  expenses,  because  the  ratio  of  the  selling  expenses 

114 


PERCENTAGE   COSTS  jj^ 

is  to  the  sales,  and  is  not  in  any  way  influenced  by  the  labor  or 
material  cost. 

After  determining  the  whole  cost  of  manufacturing,  a  percent- 
age should  be  added  to  provide  for  selling  expenses.  To  determine 
this  percentage,  divide  the  selling  expenses  for  the  year  by  the  whole 
cost. 

Hypothesis: 
Selling  Expenses -V- Manufacturing  Cost  =  Percentage. 

This  is  the  ratio  the  selling  exj^enses  are  to  whole  cost. 

Percentage  for  Profits 

If  the  intention  is  to  add  a  percentage  to  the  cost  to  provide  a 
profit  based  on  the  sales,  the  best  method  is  to  multiply  the  whole 
cost  by  IOC  and  divide  the  result  by  the  percentage  the  whole  cost 
bears  to  the  selling  price. 

Hypothesis: 

100  per  cent-  Percentage  for  profit  -  Percentage  of  Whole  Cost  to  Selling 
Price;  (Whole  Cost  X  100)  -^  Percentage  of  Cost  =>  Price  to  Sell. 

It  simplifies  matters  if  you  charge  all  supplies  to  appropriate  ex- 
pense accounts  and  include  in  the  percentage  costs  a  sum  sufficient 
to  meet  them. 


Distributing  Unproductive  Labor  and  Expenses 

When  the  expenses  are  applied  to  the  labor  cost  on  a  basis  of 
per  man,  hour,  or  any  method  using  the  labor  as  the  only  basic  cost, 
the  pay  roll  can  be  made  up  according  to  departments  on  Form  ii, 
and  the  expenses  and  unproductive  labor  can  be  applied  in  whole  or 
according  to  departments  on  a  percentage  basis  or  on  a  basis  of  fifty- 
two  weeks. 

The  pay  roll  should  be  made  up  according  to  departments, 
and  the  productive  and  nonproductive  labor  shown.  The  expense 
chargeable  to  each  department  for  the  week  should  be  entered 
opposite  the  department  and  the  total  expenses  of  the  department 
shown. 


ii6  ACCOUNTING   PRACTICE 

The  total  expenses  and  the  nonproductive  labor  should  also  be 
shown  in  the  column  provided,  and  the  percentage  to  be  used  as  a 
basis  of  distributing  the  expenses  and  nonproductive  labor  over  the 
productive  labor,  determined  by  dividing  the  productive  labor  by  the 
nonproductive  labor  plus  the  expenses. 

With  this  method  of  distributing  the  expenses,  it  is  a  very  simple 
matter  to  compute  individual  orders,  if  you  have  the  material  and 
productive  labor. 

Hypothesis: 

Cost  of  Material $200.00 

Pay  Roll   (productive  only) 100.00 

Expenses  65^  of  Pay  Roll 65.00 

Manufacturing  Cost 365.00 

Provide  20^  for  profits  and  selling  expenses. 

{$365.00  X  iqo)  -^  80  =  Sell  for $456.25 

2.     Use  of  Percentages 

Computing  Costs.    (First  Plan) 

Plan  of  computing  the  cost  where  the  basic  costs  are  labor  and 
material. 

Cost  of  Material $1 12.60 

Productive  Labor   $47.60 

Nonproductive  Labor  10^ 4.76 

Cost  of  Labor  52.36 

Cost  of  Labor  and  Material $164.96 

Expenses  11^  of  Prime  Cost 18.15 

Manufacturing  Cost  $183.11 

Provide  10^  for  Selling  Expenses. 

Provide  20^  for  Profits. 

($183.11  X  100)  -=-  70  =  Sell  for $261.59 

The  price  to  sell  at  in  order  to  provide  10^  for  selling  expenses 
and  20^  for  profit. 


PERCENTAGE    COSTS  117 

Computing  Costs.     (Second  Plan) 

Plan  of  computing  costs  where  the  basic  cost  is  labor. 

Cost  of  Productive  Labor ; . . .  $93.15 

Nonproductive  Labor  10^ 9.32 

Cost  of  Labor $102.47 

Expenses  6o<^  of  Labor 61.48 

Material   301.70 

Manufacturing  Cost    $465.65 

Provide  lo^i^  for  Selling  Expenses. 

Provide  20<i^  for  Profits. 

($465.65  X  100)  ^  70  =  Sell  for $665.21 

The  price  to  sell  at  in  order  to  provide  io;j^  for  selling  expense 
and  20^  for  profit. 


IV.     INSTALLING  A  COST  SYSTEM 

When  installing  a  cost  system,  it  is  extremely  bad  policy  to  set 
a  time  for  the  beginning  of  the  system  and  endeavor  to  inaugurate 
the  entire  system  at  once. 

Beginning  the  Use  of  the  Factory  Forms 

It  is  more  practical  to  commence  by  issuing  the  various  forms 
to  be  used  in  the  factory  a  few  at  a  time,  and  give  them  a  trial  of  a 
few  weeks  prior  to  the  date  set  for  the  actual  beginning.  This  enables 
you  to  watch  how  they  work  and  will  insure  better  results  when  you 
actually  commence  operations,  because  by  that  time,  the  factory  has 
become  accustomed  to  their  use  and  the  forms  are  in  good  working 
order.  It  enables  you  to  direct  personally  the  preparation  of  each 
and  every  form,  if  you  install  them  a  few  at  a  time,  thus  insuring 
better  results  and  avoiding  the  confusion  and  personal  annoyance 
which  must  inevitably  result  if  you  endeavor  to  be  all  over  at  once. 
It  will  also  be  more  satisfactory  to  the  workman  for  you  to  show  him 
personally  how  to  prepare  the  forms,  than  it  is  to  issue  written  in- 
structions or  have  the  directions  given  by  another  who  can  hardly  be 
expected  to  comprehend  your  ideas  until  he  has  seen  them  in  actual 
practice. 

Material 

Examine  carefully  the  operation  of  the  forms  controlling  the 
material  issued,  and  criticise  in  your  own  mind  every  detail  of  the 
operation ;  see  if  they  can  be  simplified  without  sacrificing  accuracy 
and  insure  to  the  cost  department  the  return  of  all  forms  issued. 
The  object  of  a  cost  system  in  relation  to  the  material  is:  to  keep 
an  accurate  record  of  the  material  when  received ;  to  see  that  all 
material  paid  for  has  actually  been  received;  to  show  the  value  of 
the  material  on  hand  at  any  and  all  times ;  to  insure  against  loss  by 

ii8 


IXSTALLIXG    A    COST    SYSTEM  ug 

waste   or  design ;   to   show  the   results   derived  by  the  purchase   of 
different  grades  of  the  same  class  of  material. 

It  devolves  upon  you  so  to  arrange  the  control  of  the  material, 
that  such  necessary  and  valuable  information  is  collected  and  recorded 
in  a  manner  which  is  not  open  to  question. 

Pay  Roll 

Put  your  method  of  computing  the  labor  cost  in  full  operation 
and  actually  figure  up  the  various  details  yourself  before  commencing 
the  operation  of  the  cost  system;  this  will  disclose  the  defects  and 
weakness  of  the  system  and  enable  you  to  correct  unforeseen  contin- 
gencies which  may  arise.  It  will  also  provide  something  for  the  cost 
clerks  to  work  on  and  obviate  the  necessity  of  having  clerks  capable 
of  thinking. 

Putting  the  Cost  System  into  Operation 

After  you  have  the  various  forms  in  operation  in  the  factory  and  the 
detail  is  being  collected  in  a  satisfactory  manner,  appoint  a  day  for  com- 
mencing the  system,  preferably  a  time  convenient  for  making  closings : 
if  the  cost  system  is  to  be  operated  weekly,  the  beginning  of  a  week ; 
if  the  cost  system  is  to  be  operated  monthly,  the  first  of  the  month. 

Prepare  an  inventory  of  the  work  in  process  in  the  factory  as 
at  the  date  set  for  commencing  the  system,  and  make  cost  sheets  to 
cover  all  the  work  in  process,  so  that  the  total  of  the  cost  sheets  will 
equal  the  total  of  the  inventory  of  work  in  process. 

These  sheets  are  the  cost  sheets  for  the  beginning  of  the  cost 
system  and  should  be  put  in  the  binder  for  the  cost  sheets  in  opera- 
tion, which  cost  sheets  are  a  record  of  the  work  in  process. 

If  it  is  impossible  to  take  an  inventory,  the  cost  system  can  be 
commenced  and  operated  just  as  if  the  preparatory  results  were  com- 
plete; but  in  this  case  no  work  which  was  commenced  prior  to  that 
date  would  have  a  complete  record  of  the  cost. 

An  inventory  should  be  taken  as  at  the  date  for  commencing  the 
cost  system,  and  you  should  issue  such  instructions  as  are  necessary 
to  insure  having  it  prepared  so  that  it  will  give  the  totals  in  the  way 
you  require  them  to  prepare  the  opening  entries  for  the  cost  system. 
(See  instructions  relative  to  taking  inventory.) 


V.    SCHEMES   FOR  SIMPLIFYING  WORK 

The  following  schemes  for  simplifying  the  figuring  are  given  to 
convey  an  idea  of  what  is  possible: 

(i)   Figuring  the  detail  of  the  pay  roll. 

(2)  Figuring  the  charge  for  lumber  used  in  cutting  circles. 

(3)  Figuring  square  stock. 

1.    Figuring  the  Detail  of  the  Pay  Roll 

The  figuring  of  the  detail  of  the  pay  roll  can  be  avoided  by  pre- 
paring a  book  with  a  page  for  each  rate,  and  showing  on  the  page 
the  value  of  every  quantity  of  hours  from  one  to  the  number  of 
hours  in  the  full  week. 

Index  the  book  by  the  weekly  rates,  and  the  time  cards  can  be 
extended  by  referring  to  the  wage  rate  book. 

The  same  principle  can  be  applied  to  any  form  of  wages. 

A  wage  rate  book  for  hours  of  a  60-hour  week  based,  on  the 
weekly  rate  of  pay,  would  appear  similar  to  the  following: 


$5.00  per  week  (60-hour  week) 

%   hour $.02  08 

K       "    04  17 

Ya      "    06  25 

08  33 

16  67 

25  00 

33  33 

41  66 


A  wage  book  for  hours  of  an  8-hour  day  would  appear  similar 
to  the  following: 


120 


SCHEMES    FOR    SIMPLIFYING   WORK  121 

$4.10  per  day  (8-hour  day) 

y^   hour $.12  81 

/2       " 25  63 

}i      "    38  44 

1  "    51  25 

2  " 1.02  50 

3  "    1.53  75    ^ 

4  "    2.05  00 

5  "    2.5625 

To  prepare  a  book  of  this  character,  requires  considerable  time; 
but,  when  completed,  it  is  invaluable,  because  it  expedites  matters 
and  obviates  the  necessity  of  employing  rapid  calculators.  It  is  more 
accurate,  because  the  liability  to  error  is  eliminated  by  comparison. 

2.    Figuring  the  Charge  for  Lumber  Cut  in  Circles 

Where  spool  heads  of  various  diameters  are  cut  from  the  same 
lumber,  to  ascertain  the  quantity  of  lumber  to  be  charged  against 
each  particular  size  of  spool  heads,  proceed  as  follows: 

Knozvn  Quantities: 

The  quantity  of  finished  spool  heads  of  the  First  Diameter  is  A. 

The  quantity  of  finished  spool  heads  of  the  Second  Diameter  is  B. 

The  quantity  of  finished  spool  heads  of  the  Third  Diameter  is  C. 

The  whole  quantity  of  lumber  used  to  make  all  the  spool  heads  is  D. 

Unknown  Quantities: 

The  amount  of  lumber  to  be  charged  against  spool  heads  of: 

The  first  diameter  is E. 

The  second  diameter  is F. 

The  third  diameter  is G. 

Hypothesis: 

A  X   (Constant  of  the  first  diameter)   is H. 

B  X    (Constant  of  the  second  diameter)   is I. 

C  X    (Constant  of  the  third  diameter)   is K. 

The  sum  of  H,  I  and  K  is L. 

9 


122 


AC( 

:oi 

JN' 

riNG 

PRACTICE 

H 
L 

X 

D 

equals 

E. 

I 

l" 

X 

D 

equals 

F. 

K 

—    X  D  equals  G. 

The  sum  of  E,  F  and  G  is  the  equivalent  of  D. 


Diameter: 

Constant: 

Diameter:       Constant: 

Diameter:       Constant: 

2   inches   .02  11 

5/8  inches 

15  76 

8/4  inches 

41  76 

2/8    • 

'     .02  46 

5/2   •• 

16  49 

8/8   " 

42  82 

2/4    ' 

'     .02  76 

5/8   •• 

17  26 

9 

44  87 

2/8    • 

.03  08 

5/4   " 

11  09 

9/8   " 

45  41 

2/2    • 

.03  41 

5/8   " 

18  84 

9/4   " 

46  66 

2/8    • 

.03  76 

6 

19  64 

9/8   " 

47  94 

2/4     ' 

.04  13 

6/8   •• 

20  46 

9/2   •• 

49  22 

2/8     • 

.04  51 

6/4   •• 

21  31 

9/8   " 

50  53 

3 

.04  91 

6/8 

22  17 

9/4   " 

51  84 

3/8    * 

.05  33 

6/2 

23  03 

9/8   •• 

52  49 

3/4    ' 

•05  74 

6/8 

23  94 

10     " 

54  54 

3/8    ' 

.06  21 

6/4   " 

24  85 

10/8 

55  91 

3/2    ' 

.06  68 

6/8 

25  78 

10/4 

57  30 

3/8    * 

'    .07  16 

7 

.26  73 

10/8   '• 

.58  71 

3/4    • 

.07  67 

7/8   •• 

27  68 

10/2   " 

60  13 

3/8    ' 

.08  19 

7/4   •• 

28  67 

10/8 

61  57 

4 

.08  73 

7/8   " 

29  66 

10/4 

.63  04 

4/8    • 

*    .08  29 

7/2   '• 

.30  68 

10/8 

64  50 

4/4    ' 

.09  85 

7/8   " 

.31  60 

II     " 

66 

4/8    ' 

.10  44 

7/4   " 

.32  76 

1 1/8   •• 

67  51 

4/2    • 

'    • II  05 

7/8   •• 

.33  72 

1 1/4   •• 

69  03 

4/8    • 

.11  66 

8 

•35  60 

1 1/8   " 

70  58 

4/4    • 

.12  31 

8/8   " 

•3^ 

11/2   " 

72  13 

4/8    • 

.12  94 

8/4   " 

37  12 

1 1/8   ♦• 

73  71 

5 

•13  63 

8/8   " 

36  26 

1 1/4   " 

75  30 

5/8    ' 

•14  33 

8/2   " 

39  41 

1 1/8   - 

76  92 

5/4    • 

•15  03 

8/8   " 

40  58 

12     " 

78  54 

3.     Figuring  Square  Stock 

The  following  plan  was  devised  to  obviate  the  necessity  of  figuring 
each  piece  or  lot  of  pieces. 

A  book  is  made  up  with  a  page  for  each  length  of  square  stock 
2  feet,  25^  feet,  3  feet,  3^  feet,  4  feet,  4}^  feet,  5  feet,  etc. 


SCHEMES    FOR    SIMPLIFYING    WORK 
Length  24"   (2  feet) 


123 


Size. 

100  pieces. 

At  $26.50  per  M.                At  $32.00  per  M. 

^x  y2 

4.1663  feet 

.110416 

133333 

Vsx  H 

6.5104 

.172526 

208333 

MX  M 

9-3750     " 

.248437 

300000 

J^x  K 

12.7604     " 

•338151 

408333 

I      Xi 

16.6666     " 

.441666 

533333 

iHXi)^ 

21.0937     " 

.558984 

675000 

iMxiM 

26.0416     " 

.690104 

.833333 

By  figuring  each  size  of  square  stock  used  in  this  manner,  the  cost 
clerk  is  enabled  to  price  the  square  stock  in  rapid-fire  time. 


VI.    COMPUTING  COSTS  WHERE   NO 
SYSTEM   HAS   BEEN   OPERATED 

First  examine  the  books  and  make  a  condensed  statement  of 
profit  and  loss.  (See  Report  Forms  Nos.  i  to  9.)  This  is  to  be 
used  as  a  basis  of  figuring  the  costs. 

Next  study  the  conditions  and  determine  the  amount  of  the  labor 
cost,  and  the  material  cost.  If  it  cannot  be  figure  in  detail,  take  aver- 
ages. Every  factory  keeps  record  of  production;  study  these  and 
the  pay  roll. 

The  most  practical  way  of  learning  would  be  to  accompany  an 
auditor;  therefore  the  author  will  endeavor  to  describe  the  work  so 
that  you  can  follow  the  plan  and  operations  in  your  mind. 

The  report  in  the  case  cited  was  subjected  to  harsh  criticism;  but 
the  engineers  and  accountants  engaged  in  the  business  were  obliged 
to  admit  the  accuracy  of  the  report  after  it  had  been  examined 
minutely. 

The  author  was  engaged  to  make  an  examination  of  a  typewriter 
factory  to  determine  whether  the  money  advanced  had  been  absorbed 
by  the  business,  and  incidentally  to  prepare  a  statement  of  the  cost 
of  manufacturing  the  machines. 

Visiting  the  factory,  he  proceeded  to  make  an  audit  of  the  cash 
as  outlined  previously. 

Next  he  prepared  a  condensed  statement  of  the  profit  and  loss  as 
shown  on  Report  Forms  Nos.  2  to  9. 

He  next  visited  the  factory  to  study  the  conditions.  The  manu- 
facturing proved  to  consist  of  two  divisions:  (i)  making  the  parts, 
and  (2)  assembling  the  machines. 

An  examination  of  the  department  records  revealed  a  record  of 
the  parts  made  and  the  machines  assembled. 

This  being  determined,  the  pay  roll  was  analyzed  for  the  period 

124 


COMPUTING   COSTS  125 

according  to  the  following  divisions  of  labor:  (i)  making  the  parts, 
(2)  assembling  the  machines,  and   (3)  general  labor. 

The  general  labor  was  prorated  over  the  other  divisions  and  cost 
of  parts  and  cost  of  assembling  machines  was  computed  by  weeks. 

It  was  learned  that  the  results  obtained  during  the  last  five  weeks 
were  more  satisfactory  than  the  previous  weeks. 

The  superintendent  explained  that  this  was  because  the  plant  was 
new  and  the  organization  was  not  complete  until  recently. 

This  being  the  case,  it  was  not  deemed  expedient  to  base  the  costs 
on  the  average  figures,  but  show  the  costs  according  to  the  best 
results  obtained. 

Notwithstanding  this,  the  averages  were  embodied  in  the  report, 
but  not  considered  when  figuring  the  costs. 

A  careful  study  of  the  conditions  convinced  him  that  the  only 
practical  means  of  figuring  the  cost  of  making  parts  was  to  base  the 
cost  on  the  average  number  of  parts  made  without  considering  indi- 
vidual parts. 

An  examination  of  the  stock  of  parts  on  hand  revealed  an  aver- 
age quantity  of  each  part  which  was  sufficient  evidence  that  the  aver- 
age quantity  of  each  had  been  made. 

A  summary  was  made  of  the  number  of  parts  made  each  week, 
and  the  pay  roll  of  each  week,  for  making  parts,  was  set  opposite 
the  quantity  made,  and  the  cost  extended.  An  average  was  shown 
for  all  the  weeks  and  an  average  for  the  last  five  weeks.  The  latter 
was  used  as  the  basis  of  computing  the  cost  of  making  parts  under 
the  most  favorable  conditions  which  had  existed. 

Next  a  record  was  made  of  the  quantity  of  machines  assembled 
each  week,  the  average  for  all  weeks,  and  the  average  for  the  last  five 
weeks.  The  latter  was  used  as  the  basis  of  computing  the  cost  under 
the  most  favorable  conditions  which  had  existed. 

The  foreman  stated  that  he  could  easily  double  the  output  without 
any  additional  help,  if  the  parts  were  delivered  to  him,  and  to  support 
his  statements  he  called  attention  to  the  records  which  verified  his 
claim. 

The  quantities  assembled  each  week  being  determined,  the  pay 
roll  of  each  week  was  set  opposite  the  quantity  for  the  week,  and 
the  cost  of  assembling  machines  for  each  week  was  extended. 


126 


ACCOUNTING    PRACTICE 


The  conditions  of  the  recent  weeks  being  more  favorable,  the  costs 
were  figured  on  the  basis  of  those  weeks  and  the  expenses  divided 
according  to  weeks. 

This  method  of  dividing  the  expenses  according  to  the  fifty-two 
weeks  in  the  year  is  seldom  adopted  by  the  author;  but  the  case 
seemed  to  warrant  such  a  procedure.  In  a  new  plant  there  is  always 
a  limited  production  until  the  organization  is  aflfected. 

The  following  is  the  method  adopted  to  show  the  present  results, 
the  possible  results,  and  the  best  that  could  be  anticipated  under  most 
favorable  conditions. 

Estimate  of  Cost  of  Manufacturing  Typewriters: 


Based  on  Production. 

• 

Present, 
60  Machines. 

Possible, 
80  Machines. 

Anticipated, 
100  Machines. 

Labor  Cost  of  Making  Paris: 

1 1  .96 

1 1  .96 

1 1  .96 

Based  on  Pay  Roll  for  five  weeks  end- 
ing November  2,  1901 $4,843.06 

Parts  delivered  to  the  assembling  de- 
partment averaged  81  machines  per 
week.             $4,843.o6-^(5X8I)  =per 
machine $1 1 .96 

This  cost  might  be  reduced  by  putting 
in  more  machinery  to  obviate  the 
necessity  of  making  changes,  setting 
up     machines.        Extra    machinery 
would  cost  about $20,000.00 

Labor  Cost  of  Assembling  Machines: 

Based  on  Pay  Roll  for  five  weeks  end- 
ing November  2,  1901 $5,634.77 

Department   produced    219    machines. 
$5,634.77  -J-219  =per  machine 

25-73 

Foreman  claims  he  could  assemble  100 
machines  with  the  same  help  under 
more  favorable  conditions. 

If  he  assembled  100  machines 

11.27 

If  he  assembled  80  machines 

14.08 

Carried  forward . . . 

3769 

26  .04 

23    23 

COMPUTING    COSTS 


127 


Based  on  Production, 

60  liSSncs. 

Possible, 
80  Machines. 

Anticipated, 
100  Machines. 

(parried  forward 

37-69 
4.00 
5.00 

II  .46 

26.04 
3.00 
5.00 
8.59 

23-23 
2.40 
5.00 
6.87 

Nonproductive  Labor: 

Based  on  average  of  five  weeks  ending 
November  2,  1901 $240.00 

Material  Cost:  {Estimated) 

Based   on    cost   for    the    year    ending 
November  2 ,  1 90 1 

Expense  Cost:   Supplies,  Super intefident,  etc. 

Based    on    charges    for    year    ending 

November  2 ,  1 90 1 

Manufacturing  Cost: 

Exclusive  of  depreciation,  interest  on 
capital,  etc.   per  machine 

58-iS 
2.50 

3-84 
2,3  00 

42.63 
1.87 

2.88 

33-00 

37-50 
I   88 

Depreciation  on  Machinery  and  Equipment: 
10%  on  S78  000 

10%  on  S08.000 

Interest  on  Investment: 
S^oo  000  00  (3l  j.% . . 

2.46 

Selling  Expenses:    {Average) 

Based  on  charges  for  the  year 

Z3-00 

Cost  of  manufacturing  and  sellinc' ... 

97-49 
90.00 

80.38 
90.00 

74.84 
90  .00 

Machines  sell  for  Si 00  less  10% 

Loss,  present  conditions,  per  machine 

Profit,  favorable  conditions,  per  machine. . . 
Profit,  improved  conditions,  per  machine. . . 

7-49 

9.62 

15 .  16 

VII.    COST  SYSTEMS  WITH   ORIGINAL 
WORKING   INSTRUCTIONS 

1.     Shoe  Carton  Factory  Cost  System 

It  will  pay  you  to  study  carefully  this  system,  for  it  keeps  itself 
and  the  costs  need  be  figured  only  when  desired.  The  costs  are 
always  there  and,  if  the  cost  of  any  particular  lot  is  desired,  it  can 
be  had  on   short  notice.     (Actual   experience.) 

No  factory  records  were  required  for  the  cost  system,  which  had 
not  been  in  operation  in  some  form  before  the  system  was  inaug- 
urated. 

Work  orders  (Form  4)  are  issued  for  all  construction  work,  re- 
pairs, etc.,  and  the  costs  are  always  existent  although  not  figured. 

The  factory  order  (Form  8)  is  issued  and  the  superintendent's 
clerk  issues  a  combining  order  (Form  5). 

The  combining  machines  are  adjusted  and  the  weights  of  the 
rolls  of  paper  are  noted  on  the  back  of  Form  10,  as  the  paper  is  put 
in  the  machine. 

When  completed,  the  material  charge  slip  (Form  10)  is  executed, 
and  the  quantity  of  paste  used  (estimated)  is  also  entered  on  it. 

The  combined  paper,  now  box  board,  goes  upstairs  to  the  carton 
department  and  the  cartons  are  made  under  Form  8. 

The  registers  on  the  machines  give  the  count,  which  is  entered  on 
Form  8,  for  both  rotary  and  gluing  machines. 

If  stock  combined  box  board  is  used,  it  is  charged  on  Form  8. 

The  wrapper  order  is  issued  to  the  wrapper  man  for  the  prepa- 
ration of  the  wrappers,  and  the  printing  order,  when  printing  is  re- 
quired. The  wrapper  man  and  printer  charge,  on  the  slip  issued  to 
them,  all  supplies  required  for  the  order,  and  these  slips  return  to 
the  factory  office  when  completed. 

When  the  orders  are  completed,  the  forms  are  dated  with  a  stamp 

128 


COST    SYSTEMS  12^, 

and  are  returned  to  the  cost  department  and  filed  in  the  envelopes 
(Form  No.  7). 

The  pay  roll  is  charged  from  Forms  i  and  i  a. 

Every  employee  working  on  an  order,  makes  a  separate  Slip 
Form  I  a  for  each  order.  He  returns  time  slips  for  ten  hours  each 
day  and,  if  any  part  of  the  work  was  nonproductive,  he  makes 
returns  on  Form  No.  i. 

The  factory  records  of  pay  roll  are  made  from  these  slips,  and 
then  the  slips  are  dated  with  a  stamp  and  sent  to  the  cost  depart- 
ment, where  the  slips  are  filed  in  the  Envelopes  Form  7. 

Operating  the  Cost  System 

If  the  system  is  operated  and  figured  daily,  the  slips  and  charges 
for  material,  etc.,  are  received  daily;  they  are  figured  and  listed  on 
an  adding  machine,  and  the  total  added  to  the  control  sheet  of  the 
cost  system. 

The  forms  are  then  charged  to  the  Envelope  Form  7  and,  after 
the  charge  is  made,  the  form  is  slipped  in  the  envelope. 

All  forms  for  charges,  orders,  and  memorandums  relating  to  the 
order,  are  put  in  the  Envelope  Form  7  and  preserved. 

Pay  Roll 

The  pay  roll  slips  are  analyzed  weekly,  according  to  the  order 
numbers  and  each  week  should  have  a  number.  To  analyze,  simply 
sort  the  slips  according  to  orders.  The  number  of  the  week  should 
be  stamped  on  the  slips  and  the  summary  of  the  analysis  should  be 
entered  in  the  journal  for  charges  to  cost  sheets  (any  kind  of  jour- 
nal) ;  the  total  should  be  added  and  the  nonproductive  labor  pro- 
rated over  the  productive  items  to  be  charged  to  order  numbers. 

The  charges  for  labor  should  then  be  made  to  the  Envelope 
Form  7  and  the  slips  put  in  the  envelopes. 

Making  Weekly  Closing 

After  all  charges  have  been  made  for  the  week,  the  envelopes  are 
figured  and  a  list  made  of  the  amounts  on  the  adding  machine.  The 
total  is  verified  by  the  control  sheet. 


I30  ACCOUNTING    PRACTICE 

When  the  charges  for  the  week  have  all  been  made  to  Form  7,  the 
completed  orders  are  sorted  out  and  figured. 

A  percentage  (shown  by  the  general  office  books)  is  added  to  the 
completed  orders  for  department  and  general  expenses. 

The  completed  orders  (cost  sheets)  are  then  listed  and  the  total 
is  deducted  from  the  control  sheet  for  the  cost  system. 

The  envelopes  of  the  completed  orders  are  then  filed  permanently 
for  future  reference. 

The  results  of  the  cost  system  are  entered  on  the  general  books 
by  making  journal  entries  for  the  results  shown  on  the  control  sheet 
for  the  cost  system,  as  described  heretofore. 

If  the  Cost  System  is  to  Keep  Itself 

The  records  are  all  prepared  and  filed  away  in  the  envelopes  just 
the  same,  except  the  figuring  is  not  done. 

This  requires  only  about  an  hour  of  a  girl's  time  each  day  and  can 
be  done  at  any  time. 

The  nonproductive  labor  being  a  percentage  charge  based  on  an 
average  of  the  past  experience,  it  should  be  changed  if  the  conditions 
change. 

A  record  should  be  kept,  showing  the  percentages  to  be  charged 
by  months,  in  form  convenient  for  reference. 

A  record  should  also  be  kept  of  the  percentage  of  nonproductive 
labor,  by  months,  in  form  convenient  for  reference. 

At  any  future  time,  the  cost  of  any  order  can  be  determined  accu- 
rately by  taking  out  the  envelope  for  the  order  and  figuring  the  slips 
contained  in  the  envelope,  adding  the  percentage  charges  shown  for 
the  period  in  the  record  of  percentages. 

Working  Instructions 

PRINCIPLE 

The  principle  of  this  cost  system  is: 

(i)  Obtain  proper  basic  items  of  cost;   (these  are  the  direct 

charges  for  labor  and  material)  ; 
(2)   Add  a  percentage  to  the  labor  for  nonproductive  labor; 


COST   SYSTEMS  131 

(3)  Charge   computed   rates    for   all   supplementary   items   of 

cost,  such  as  paste,  glue,  etc. ;  and 

(4)  Increase  the  whole  by  a  percentage  (based  on  the  previous 

year's   business)    for   fixed   charges,   office   and   factory 
expenses. 

OPERATION 
In  the  operation  of  the  cost  system  there  are  virtually  two  systems : 
First  System:  Computes  the  cost  of  combining  box  board. 
Second  System:  Computes  the  cost  of  cutting,  folding,  gluing, 
finishing  and  packing  the  shoe  cartons. 

The  Computing  of  Costs  May  Be  Discontinued 

After  competent  rates  have  been  compiled  for  charging  the  sup- 
plementary items  of  cost,  if  it  is  not  desirable  to  compute  the  cost 
of  each  and  every  order,  the  forms  may  be  sorted  and  placed  in  the 
assembling  envelope  (Form  7),  and  only  such  orders  computed  as 
may  be  deemed  necessary  or  desirable. 

This  does  not  mean  a  discontinuance  of  the  system,  as  the  cost 
of  any  order  may  be  computed  at  any  time. 

But  whenever  conditions  change^  which  affect  the  supplementary 
charges,  new  rates  must  he  computed.  This  applies  to  both  labor  and 
material. 

Form  1.    Time  Slip  for  Nonproductive  Labor 

When  an  employee  is  engaged  on  work  which  is  not  to  he  charged 
to  an  order,  he  should  make  a  record  of  his  time  on  this  Form  i. 

Enter  on  the  form: 

(i)  Time  Clock  Number, 

(2)  Enter  in  the  column  headed  "  work  done  "  a  description 

of  the  work  engaging  his  time,  and 

(3)  Enter  in  the  column  headed  "  hours  "  the  number  of  hours 

he  was  engaged  on  the  work. 

The  date  will  be  entered  hy  the  clerk  in  the  factory  office  who  will 
stamp  the  date  on  all  time  slips  and  verify  them  before  sending  them 
to  the  office. 

This  form  is  used  to  compute  a  basis  of  percentage  to  be  added 
to  productive  labor,  to  provide  for  the  cost  of  nonproductive  labor. 


132  ACCOUNTING    PRACTICE 

Form  2.     Time  Slip  for  Productive  Labor 

When  an  employee  is  doing  work  which  is  to  be  charged  to  an 
order,  he  should  make  a  record  of  the  time  on  Form  i  a. 

The  employee  must  enter  on  this  form: 

(i)   The  Employee's  Time  Clock  number. 

(2)  The  number  of  the  order  engaging  his  time. 

(3)  The  number  of  hours  to  be  charged. 

The  employee  may  enter  on  this  form: 

(4)  The  time  he  commenced. 

(5)  The  time  he  finished. 

The  employee  should  make  notes  relating  to  the  labor  in  the  place 
provided  for  remarks. 

The  date  will  be  entered  hy  the  clerk  in  the  factory  office,  who  will 
stamp  the  date  on  all  time  slips  when  he  verifies  them  before  sending 
them  to  the  cost  department. 

This  form  is  used  to  compute  the  proper  charge  to  be  made  for 
'productive  labor,  and  all  labor,  which  can  be  charged  directly  to  an 
order,  should  be  charged  against  the  order,  no  matter  how  the  em- 
ployee is  engaged. 

This  charge  is  the  basic  cost  of  labor. 

Form  3.    Received  Registry  Sheet 

This  form  should  be  used  in  making  a  record  of  the  material 
received.  The  register  number  of  the  goods  will  be  the  number  of 
the  sheet  and  forever  after  that  number  must  be  used  to  identify  the 
goods. 

The  object  of  this  form  is: 

(i)   To  provide  the  cost  department  with  a  means  of  obtain- 
ing the  prices  of  the  material  purchased. 

(2)  To  make  a  record  of  goods  received. 

(3)  To  provide  a  memorandum  of  the  stock  for  the  factory 

office. 

Form  4.    Work  Order 

A  work  order  should  be  issued  for  all  work  to  be  done  in  the 
factory  not  provided   for  by  the   shoe  carton   order   and   the   com- 


COST   SYSTEMS  133 

bining  order,  excepting  nonproductive  labor  in  connection  with   the 
making  of  shoe  cartons. 

Work  orders  should  be  issued  weekly  for: 
(i)  Making  of  paste. 

(2)  Mixing  of  glue. 

(3)  Printing  materials. 

Work  orders  should  be  issued  for  remodeling  or  rebuilding  ma- 
chinery or  buildings,  and  all  work,  where  it  is  desirable  to  ascertain 
the  cost.  Each  work  order  will  be  issued  in  triplicate,  similar  to 
Form  5. 

Mixing  of  Glue 

A  work  order,  Form  4,  should  be  issued  weekly  for  the  mixing 
of  glue  and  all  materials  used,  and  work  done  in  connection  with 
them  should  be  charged  to  that  work  order. 

The  object  of  this  is  to  obtain  a  basis  of  rates  which  can  be  used 
in  making  charges  for  the  glue. 

Making  of  Paste 

A  work  order,  Form  4,  should  be  issued  weekly  for  the  making 
of  paste,  and  all  materials  used  and  work  done  in  connection  with  it 
should  be  charged  to  the  work  order  number. 

The  object  of  this  is  to  establish  a  basis  of  rates  which  can  be  used 
in  making  charges  for  paste. 

Form  5.    Combining  Order 

The  factory  office  will  issue  combining  orders  on  this   form  for 
all  combining  to  be  done  and  each  order  will  be  issued  in  triplicate: 
(i)   Original:     Cost  department  copy. 

This  copy  should  be  sent  to  the  cost  department  as 
soon  as  convenient  after  issue. 

(2)  Duplicate:  Factory  copy. 

This   copy    should   be   delivered   to   the    foreman   in 
charge  of  the  combining. 

(3)  Triplicate:  Factory  office  copy. 

This  copy  should  remain  bound  in  the  book  for  ref- 
erence. 


134  ACCOUNTING    PRACTICE 

When  the  work  is  completed  the  order  should  be  returned  to  the 
factory  office  and  by  them  delivered  to  the  cost  department. 

Form  7.     Envelope  for  Assembling  Charges 

Time  slips  (Forms  i  and  i  a)  should  be  delivered  to  the  cost  de- 
partment daily  after  the  rates  have  been  entered  on  them  and,  after 
the  extensions  have  been  made,  the  items  should  be  entered  on  the  en- 
velope and  the  charge  slips  placed  in  the  envelope  for  future  reference. 

Charge  slips  (Forms  8,  9  and  10)  for  material  should  be  deliv- 
ered to  the  cost  department  as  soon  as  the  factory  offices  have 
made  their  stock  records,  and,  after  the  extensions  have  been  made, 
the  items  should  be  entered  on  the  envelope  and  the  charge  slips 
placed  in  the  envelope  for  future  reference. 

Form  8.    Shoe  Carton  Order 

This  order  should  be  issued  by  the  factory  office  and,  at  the 
time  it  is  issued,  a  memorandum  should  be  made  of  the  combining 
order  number  issued  in  connection  with  it  or  the  combining  order 
number  of  combined  stock  to  be  issued. 

The  printing  order  should  be  used  when  printing  is  to  be  done 
on  the  order  and  the  wrapper  order  should  be  used  by  the  wrapper 
man  to  make  proper  charge  for  his  work  and  material. 

Form  9.     Charge  Order  Number 

Where  material  is  required  for  an  order  and  where  material  is 
used  on  an  order  other  than  the  following: 

Paper  charged  on  Form  10. 

Wrapper  charged  on  Form  8. 

Paste  charged  on  Form  8. 

Printing  materials  charged  on  Form  8. 

Glue  charged  on  Form  8. 

Paste  charged  on  Form  10. 

Charge  should  be  made  for  it  on  this  Form  9. 
This  is  a  basic  cost  for  material. 

Form  10.     Material  used  on  Combining  Order 

When  the  materials  are  assembled,  preparatory  to  operating  the 
combining  machine,  note  on  this  form : 


COST    SYSTEMS  13. 

(i)  The  date  the  form  is  executed, 

(2)  The  combining  order  number, 

(3)  The  register  number  of  the  rolls  of  paper, 

(4)  The  original  weights, 

(5)  The  work  order  number  of  the  paste  used,  and 

(6)  When  the  combining  is  completed,  enter  the  weights  of 

the  paper  not  used. 

This  form  is  used  to  make  the  charge  against  the  combining  order 
for  the  paper  required  to  complete  the  order. 
This  is  a  basic  cost  for  viaterial. 

2.    Cotton  Mill  Cost  System 

The  following  system  was  put  in  operation  in  a  large  combination 
of  mills  and  the  system  was  kept  by  one  man.  No  new  forms  were 
required  for  use  in  the  mills,  because  the  regular  records  were  suffi- 
cient. 

The  system  is  closed  quarterly  and  shows  the  results  in  detail  of 
about  one  hundred  and  fifty  different  kinds  of  yarn  and  about  fifty 
kinds  of  cloth. 

Opening  the  Cotton 

A  record  of  the  bales  of  cotton  opened  is  kept,  so  that  the  quan- 
tity of  each  kind  used  is  known. 

Waste  Produced 

A  record  of  waste  is  kept,  so  that  the  quantity  of  each  kind  of 
waste  and  its  disposition  is  known. 

Cotton  and  Waste  Sheet  (quarterly) 

A  sheet  is  made  for  the  cotton  and  waste;  the  sheet  is  charged 
with  the  inventories  at  the  beginning,  with  all  cotton  reported  opened 
as  per  opening  record  and  waste  consumed.  From  the  total  is  de- 
ducted the  inventory  of  cotton  and  waste  at  the  end  of  the  period  and 
the  allowances  for  waste  produced.  The  net  results  should  be  the 
cotton  of  each  character  used. 

From  the  net  quantities  of  cotton  used,  deduct  the  production  of 


136  ACCOUNTING    PRACTICE 

yarn,  and  the  balance  will  be  the  loss  of  cotton  in  operation  of  the 
spinning. 

The  price  of  cotton  to  be  used  is  the  cost  obtained  by  dividing  the 
total  cost  of  each  (after  all  allowances  for  waste,  etc.)  by  the  pounds 
of  yarn  produced  from  each  kind  of  cotton. 

The  price  of  the  cotton  distributed  over  the  yarn  production  sheet 
at  a  per  pound  rate  should  equal  the  total  value  of  cotton  used, 
according  to  the  condensed  statement  of  profit  and  loss  for  the 
quarter. 

Quarterly  Statement 

To  obviate  the  necessity  of  closing  the  books  quarterly,  a  statement 
is  made,  on  which  are  provided  columns  for  the  trial  balances  for  the 
beginning  and  end  of  the  period,  and  the  difference  on  each  account. 
The  diflferences,  with  the  inventories  should  give  the  results  for  the 
quarter. 

Expenses 

The  expenses  are  prorated  over  the  departments,  by  making  a 
summary  6f  the  departments  (Form  No.  11)  for  the  quarter  and 
distributing  the  expenses  for  the  quarter  over  the  departments. 

Labor 

From  the  opening  to  the  roving,  not  including  roving  and  except- 
ing combing,  when  it  is  combed,  the  cost  is  kept  weekly  according 
to  the  total  pay  roll  chargeable  to  this  and  the  quantity  produced  by 
the  department. 

Roving 

The  roving  is  made  up  weekly  on  a  sheet  which  has  a  column  for 
each  of  the  following: 

Hank  Number. 

Number  of  Hanks. 

Pounds. 

Wages. 

Nonproductive  (Wages). 

Total. 

Average. 


COST    SYSTEMS  137 

Each  week  this  sheet  is  compiled  from  the  department  reports  for 
making  up  the  pay  rolls. 

The  results  of  each  week  are  posted  to  the  cost  book  (ledger) 
which  has  an  account  for  each  hank  number.  The  account  is  printed 
with  headings  like  the  weekly  sheet  and  shows  the  results  of  each 
hank  number  for  each  week,  and  the  total  for  the  quarter  is  the 
result  used  in  computing  the  cost  of  roving. 

The  cost  of  roving  is  based  on  the  actual  production  of  yarn,  a 
summary  being  made  of  the  yarn  produced  by  charging  the  produc- 
tion of  each  yarn  to  the  various  rovings  for  that  yam. 

Frame  and  Mule  Spinning 

A  sheet  is  made  up  weekly  for  each  class  of  spinning,  and  shows 
the  result  of  the  week's  work.  The  columns  of  the  sheet  are  headed 
as  follows: 

Yarn  Number. 

Spindles  Run. 

Pounds  of  Yam. 

Wages. 

Nonproductive  (Wages). 

Total. 

Average. 

Each  week  this  sheet  is  made  up  from  the  department  reports  for 
pay  rolls. 

The  results  for  the  week  are  posted  from  the  weekly  sheet  to  the 
cost  book  (ledger),  which  has  an  account  for  each  and  every  yarn 
number.  Each  account  shows  the  same  records  as  the  weekly  sheet, 
the  weeks  being  posted  successively  and  the  total  being  made 
for  the  quarter.  These  totals  for  the  quarter  are  taken  off  on 
an  analysis  sheet  and  are  the  results  used  in  computing  the  cost 
of  yarn. 

Quarterly  Closing,  Making  Yarn 

The  results  for  the  quarter  of  each  style  of  spinning  are  made  up 

on  an  analysis  sheet  with  about  twenty  columns. 

The  sizes  of  yarn  are  entered  on  the  sheet  and  the  quantity  of 

each  produced.     The  yarns  are  classified  according  to  the  style  of 
10 


138  ACCOUNTING    PRACTICE 

cotton  tised  and  the  purpose  of  the  yarn.  The  cost  of  cotton 
is  distributed  over  the  yarn  sheets,  so  that  the  net  cost  of  cotton 
used  will  be  equal  to  the  total  charges  for  cotton  on  the  spinning 
sheets. 

The  cost  of  opening  to  drawing  is  charged  at  a  per  pound  rate,  so 
that  the  total  amount  will  equal  the  labor  cost  of  those  departments. 
The  expense  charge  for  those  departments  is  prorated  over  the  labor 
cost  of  opening  to  drawing. 

The  roving  and  roving  expenses  in  the  next  columns  are  charged 
from  the  roving  summary,  each  yarn  being  charged  with  the  cost  of 
roving,  so  that  the  total  equals  the  roving  sheets. 

The  actual  roving  each  size  hank  roving  shown  by  the  roving 
sheets  will  exceed  the  yam  produced  by  the  waste  in  roving.  Taking 
the  summary  of  roving  made  with  the  pounds  of  yarn  charged  to 
each  roving  for  the  yarn,  and  dividing  that  number  of  pounds  into 
the  wages  of  each  roving,  gives  the  actual  cost  of  each  roving. 

After  distributing  the  cost  of  roving,  the  spinning  labor  and 
expenses  are  added. 

The  total  is  the  cost  of  making  each  yarn. 

The  yarns  are  then  separated,  the  hosiery  yarn  kept  by  itself  and 
the  cloth  yarns  charged  to  manufacturing  cloth. 

Final  Summary  of  Yarn 

The  cost  of  making  the  hosiery  yarn  is  summarized  on  a  sheet  with 
the  following  special  columns: 

Spindles : 
Run. 
Average  per  spindle. 

Yarn: 

Numbers. 
Style. 
Made  on. 
Pounds  spun. 

Based  on  Cotton: 
Class. 
Average  per  pound. 


COST    SYSTEMS  139 

Cost  of  Cotton  {per  pound  produced)  : 
Amount. 
Average  per  pound. 

Expense  Cost  {per  pound  produced)  : 
Amount. 
Average  per  pound. 

Labor  Cost  {per  pound  produced)  : 
Amount. 
Average  per  pound. 

Total  Cost  {per  pound  produced) : 
Amount. 
Average  per  pound. 

The  results  shown  on  the  spinning  sheets  are  summarized  on  the 
final  summary  and  the  averages  shown. 

This  summary  is  the  basis  upon  which  costs  of  the  many  ways  of 
finishing  the  yam  are  computed. 

Cost  of  each  hosiery  yarn  is  figured  on  Form  No.  36. 

Quarterly  Closing,  Making  Cloth 

Weekly  Sheet  for  Weaving 

The  weaving  is  made  up  weekly  from  the  cloth  reports  and  the 
labor  analyzed  according  to  the  cloth  and  loom. 

The  weekly  sheet  for  weaving  has  columns  for  the  following: 

Width  of  Cloth. 

Cuts. 

Yards. 

Pounds. 

Wages. 

Nonproductive. 

Total. 

Average. 

Final  Summary 

The  results  of  the  weekly  sheets  are  posted  to  the  cost  book 
(ledger),  which  has  an  account  for  each  size  and  style  of  cloth.  The 
columns  of  the  ledger  accounts  have  the  same  headings  as  the  weekly 


I40  ACCOUNTING    PRACTICE 

sheet,  and,  at  the  end  of  the  quarter,  the  production  is  taken  off  the 
ledger  on  a  summary  sheet  which  has  the  following  columns: 
Cloth: 

Number. 

Style. 

Yards. 

Pounds. 
Cost  of  Warp: 

Pounds. 

Amount. 

Average  per  pound. 
Cost  of  Filling: 

Pounds. 

Amount. 

Average  per  pound. 
Weaving : 

Labor. 

Average  per  pound. 

Expense. 

Average  per  pound. 
Cost  of  Cloth: 

Amount. 

Average  per  pound. 

Average  per  yard. 

Yards  per  pound. 

The  cost  of  each  style  and  width  of  cloth  is  figured  on  Form 
No.  35. 

Working  Instructions 

To  facilitate  matters  and  compile  the  results  so  that  they  can  be 
easily  comprehended,  the  system  will  be  subdivided  into  the  follow- 
ing departments: 

(i)  Manufacturing  Yarn. 

{2)  Manufacturing  Cloth. 

(j)  Finishing  Cloth. 

(4)  Finishing  Yarn. 

(5)  Making  Sheets  and  Pillow  Cases. 


COST    SYSTEMS  141 

The  cotton  and  waste  will  be  opened  and  put  in  process.  After 
the  spinning,  the  cost  of  manufacturing  yarn  will  be  determined,  and 
the  proportion  of  the  cost  chargeable  to  hosiery  yarn  will  be  set  aside, 
but  the  proportion  chargeable  to  cloth  will  be  charged  against  the 
department  of  manufacturing  cloth.  The  cost  of  all  labor  and  ex- 
pense in  connection  with  the  actual  making  of  the  cloth  will  be 
charged  against  the  department  of  manufacturing  cloth,  and  the  total 
result,  which  will  be  distributed  and  shown  according  to  each  width 
(standard)  and  style  of  cloth,  will  be  the  cost  of  manufacturing  the 
cloth,  and  the  final  result  will  be  the  production  and  cost  of  each  size 
and  style  of  cloth. 

Finishing  cloth  will  not  be  a  department  of  manufacture,  but 
simply  an  account  on  the  general  ledger,  to  which  will  be  charged 
all  bills  for  finishing  brown,  and  bleaching  and  finishing. 

Finishing  yam  will  be  a  department  of  manufacture,  and  will 
comprise  all  costs  for  operations  and  supplies  on  the  hosiery  yarn 
after  the  spinning. 

The  prime  costs  will  be: 

I.  Cost  of  Making  Cloth,  and 
II.  Cost  of  Making  Hosiery  Yarn. 

I.  After  the  cost  of  making  cloth  Jias  been  determined,  the  cost  of 
finishing  brown  or  bleaching  and  finishing  will  be  added  to  show  the 
cost  of  each  style  and  size. 

II.  After  the  cost  of  making  yarn  has  been  determined,  the  cost 
of  special  dyeing,  combing,  cones,  etc.,  will  be  added  to  show  the  cost 
of  each  style,  and  size  of  yarn  prepared  as  desired. 

The  making  of  sheets  and  pillozv  cases  will  not  be  a  department 
of  manufacture,  but  simply  an  account  on  the  general  ledger,  to  which 
account  will  be  charged  all  expenses  and  material  in  connection  with 
the  manufacture  of  them. 

Each  system  will  be  complete  in  itself,  and  the  items  classified  thus : 

(a)  Labor  Cost. 

(b)  Material  Cost. 

(c)  Expense  Cost. 

The  expense  cost  will  not  include  cost  of  selling,  which  will  be 
treated  as  a  supplementary  cost  to  be  considered  only  as  desired,  the 


142  ACCOUNTING    PRACTICE 

object  being  to  determine  the  cost  of  manufacturing  and  show  the 
cost  of  selling  as  an  after  consideration. 

(a)  Labor  Cost 

The  labor  cost  will  take  the  weekly  pay  roll  and  analyze  it  accord- 
ing to  the  departments,  separating  these  so  that  the  amount  of  labor 
at  large  (which  is  not  chargeable  directly  to  manufacturing  depart- 
ments) can  be  ascertained  and  distributed  among  the  manufacturing 
departments,  by  prorating  it  according  to  the  amount  of  wages  charge- 
able to  each  manufacturing  department. 

These  figures  should  be  so  compiled,  that  the  proportion  of  non- 
productive labor  at  large  will  be  so  recorded  that  comparisons  can 
be  made  of  same  from  week  to  week. 

The  labor  chargeable  directly  to  each  department  is  then  analyzed, 
in  order  to  determine  the  amount  of  productive  labor  (labor  charge- 
able directly  to  cost  of  manufacture)  and  the  amount  of  nonpro- 
ductive labor  in  the  department. 

After  ascertaining  the  amount  of  nonproductive  labor  in  the  de- 
partment, the  total  of  the  nonproductive  labor  in  the  department  and 
the  proportion  of  the  nonproductive  labor  at  large,  which  is  charge- 
able to  the  department,  are  distributed  among  the  various  items  of 
productive  labor  by  prorating  them  according  to  the  amount  of  each, 
which  result  will  be  the  labor  cost,  and  the  final  total  of  the  labor 
cost  for  the  week  must  agree  with  the  pay  roll. 
The  pay  roll  will  be  classified  as  follows: 

Opening,  Picking  and  Carding. 

Combing. 

Roving. 

Frame  Spinning. 

Mule  Spinning. 

Spooling,  Warping  and  Slashing. 

Weaving,  etc. 

Cloth  Room. 

Cone  Winding. 
Twisting. 
Dyeing. 
Knitting. 


Manufacturing  Yarn 


Manufacturing  Cloth  • 


Supplementary 


COST    SYSTEMS  143 

After  the  pay  roll  has  been  analyzed  according  to  departments, 
and  the  nonproductive  labor  distributed,  the  totals  of  the  wages 
chargeable  to  the  departments  must  equal  the  total  pay  roll  for 
the  week. 

Roving 

Total  labor  chargeable  to  the  roving  department  is  compiled  as 
follows : 

Analyze  the  pay  roll  of  the  roving  department,  in  order  to  deter- 
mine the  amount  of  labor  chargeable  directly  to  each  hank  number. 
Make  a  summary  schedule  of  this,  and  then  distribute  the  total 
amount  of  nonproductive  labor  over  the  schedule  by  prorating  it 
according  to  the  amount  of  wages  chargeable  against  each  hank 
number,  so  that  the  total  of  the  revised  schedule  will  equal  the  total 
pay  roll  for  that  department. 

Spinning 

The  total  labor  chargeable  to  the  mule  spinning  is  compiled  as 
follows : 

Make  an  analysis  of  the  pay  roll  of  the  mule  spinning  to  deter- 
mine the  amount  of  wages  chargeable  to  each  yam.  A  schedule 
of  this  analysis  is  then  made,  and  the  total  of  the  nonproductive  labor 
of  all  kinds  chargeable  to  the  department  is  distributed  over  the 
schedule  by  prorating  it  according  to  the  amount  chargeable  to  each 
yarn.  The  total  of  the  productive  and  nonproductive  labor  charge- 
able to  each  yarn  will  be  the  total  labor  cost  of  each  yarn. 

The  same  method  applies  also  to  frame  spinning. 

Weaving 

The  labor  chargeable  to  the  weaving  department  is  compiled  as 
follows : 

Make  an  analysis  of  the  labor  chargeable  to  weaving,  for  every 
operation  associated  therewith,  to  determine  the  amount  of  labor  on 
each  cloth  according  to  its  style  and  width  (standard) .  A  summary 
of  this  analysis  is  then  made,  and  the  total  nonproductive  labor  of  all 
kinds  chargeable  to  the  weaving  department  is  distributed  over  the 
summary  by  prorating  it  according  to  the  amount  of  productive  wages 
chargeable  to  each  style  and  width  of  cloth.     The  total  of  the  pro- 


144  ACCOUNTING    PRACTICE 

ductive  and  nonproductive  labor  chargeable  to  each  cloth  will  be  the 
total  labor  cost  of  the  cloth,  and  the  total  of  the  completed  schedule 
will  equal  the  total  of  the  productive  and  nonproductive  labor  charge- 
able to  the  department. 

Roving 

The  pay  roll  of  the  roving  department  must  be  prepared  accord- 
to  the  hank  roving. 

Mule  Spinning.     Frame  Spinning 

The  results  would  be  more  satisfactory  if  the  actual  weights  were 
reported.  The  weight  of  each  yarn  spun  and  the  wages  for  spinning 
each  yarn  must  be  reported,  so  that  the  labor  cost  of  each  class  of 
yarn  can  be  computed. 

Combing 

The  labor  paid  for  combing  must  be  shown  separately.  The 
pounds  combed  and  the  pounds  of  the  combings  must  be  made  a 
matter  of  definite  record. 

Weaving,  etc. 

The  pay  roll  for  weavers  and  all  operations  associated  with  them 
should  be  reported  as  performed  on  the  size  (standard)  of  the  cloth 
instead  of  the  size  of  the  loom. 

Spare  Weavers 

Wages  should  be  charged  against  size  of  cloth  according  to  the 
items  reported  opposite  regular  weavers'  names  on  the  pay  roll  sheets, 
which  items  should  equal  the  wages  of  the  spare  weavers. 

Yarn  Supplementary  Wages 

After  the  yarn  has  been  manufactured,  all  supplementary  wages 
must  be  separated,  that  is,  the  pay  rolls  for 

Winding, 

Spooling   (Hosiery  yarn  only), 

Twisting, 

Rewinding. 
Yarn  Supplies 

All  supplies,  cops,  etc.,  for  hosiery  yarn  must  be  separated  on 
the  general  books  and  carried  in  a  separate  account. 


COST    SYSTEMS  14^ 

No.  3  Yarn  (made  from  waste) 

Should  be  separated  all  through  in  all  processes,  and  in  every  way 
possible. 

Spooling 

The  pay  roll  for  spooling  must  be  so  prepared  that  it  is  possible 
to  discriminate  between  spooling  cloth  yarns  and  spooling  hosiery 
yarns. 

The  labor  cost  will  be  computed  and  compiled  weekly,  but  the 
material  and  expense  costs  will  only  be  compiled  quarterly. 

(b)  Material  Cost 

The  cotton  and  waste  will  be  charged  against  manufacturing 
yarn,  and  after  spinning  the  yam,  the  qost  of  making  yarn  will  be 
the  first  material  cost  chargeable  to  manufacturing  cloth,  and  dress- 
ing supplies  of  all  kinds  will  be  added  to  the  cost  of  yarn  in  the 
department  of  manufacturing  cloth. 

The  yarn  purchased  for  warp  and  filling  must  be  so  recorded, 
that  its  weight  and  value,  raw  and  dressed,  will  be  known. 

The  yarn  sold,  warp  and  filling,  must  be  so  recorded,  that  its 
weight  and  value,  raw  and  dressed,  will  be  known. 

All  supplies  of  starch,  etc.,  used  in  dressing  will  be  charged  to  a 
"  Dressing  Supplies  Account "  on  the  general  ledger,  and  the  quantity 
used  must  be  reported  weekly. 

(c)  Expense  Cost 

The  expense  will  be  divided  as  follows: 

(i)  Administration  Expense. 

(2)  General   Mill   Expense. 

(3)  Department  Expense. 

(i)  The  administration  expense  will  comprise  all  expenses  which 
are  chargeable  against  all  mills,  and  cannot  be  charged  directly  to  any 
particular  mill,  except  selling  expenses. 

(2)  The  general  mill  expense  will  comprise  all  expenses  charge- 
able to  a  particular  mill,  but  not  against  any  particular  department. 

(3)  The  department  expense  will  comprise  all  expenses  charge- 
able directly  to  departments. 


146  ACCOUNTING    PRACTICE 

The  expense  cost  will  he  distributed  as  follows: 

The  administration  expense  will  be  distributed  among  the  various 
mills  on  a  basis  of  production. 

The  general  mill  expense  will  be  added  to  the  proportion  of  admin- 
istration expense  chargeable  to  the  mill  and  distributed  among  the 
various  departments  on  a  basis  of  labor  cost. 

The  department  expense  will  be  added  to  the  proportion  of  admin- 
istration and  general  mill  expense  chargeable  to  the  department  and 
distributed  among  the  various  items  of  labor  cost,  prorating  it  accord- 
ing to  the  amount  of  the  labor  cost. 

When  taking  the  inventory  at  the  beginning  it  will  be  neces- 
sary to  show  in  each  department  of  manufacture  the  composition 
of  the  inventory;  namely,  the  amount  computed  for  cotton,  waste, 
labor  and  expense,  the  basis  of  the  charge  for  cotton  to  be  the  in- 
ventory weights;  the  basis  of  the  charge  for  labor  to  be  the  two 
prior  pay  rolls;  and  the  basis  of  the  charge  for  expense  to  be  the 
expenses  of  the  prior  period. 

3.     Cost  System  for  a  Drug  Compounding  Laboratory  and 

Factory 

General  Outline  of  Routine 

The  work  of  compounding  in  the  laboratory  is  done  in  secret,  the 
drugs  are  known  to  the  cost  clerk  by  numbers  only,  and  the  quantity 
of  each  required  for  each  and  every  machine  is  computed  so  that 
the  cost  clerk  simply  changed  a  price  when  the  pharmacist  notifies 
her  that  the  price  has  changed. 


Drug  No.  I 

"      2 

it  n  . 

4 

"        "    5 


Required  for  Machine  No.  lo 

I  oz.         at $1.75  $1.75 

I  quart      " 40  40 

50  gallons  " 1.60  80.00 

100         "       " 07  7.00 

3  grains    " 2.75  8.25 


Cost  of  Drugs  required  for  No.   10  Machine $9740 

These  are  arranged  in  an  indexed  book  which  keeps  a  record  of 
all  prices. 


COST   SYSTEMS  147 

The  pharmacist  prepares  tlie  compound.  If  he  operates  three 
machines  in  concert,  he  simply  crosses  off  the  numbers  of  the  ma- 
chines on  the  envelope  (Form  No.  12)  ;  when  the  compound  is  ready, 
it  is  run  in  a  tank  and  the  number  of  the  tank  put  on  the  envelope 
(Form  No.  12).  At  this  time  the  pharmacist  also  makes  a  tag 
(Form  No.  14)  ;  the  number  of  this  tag  corresponds  with  the  number 
of  the  envelope  (Form  No.  12).  On  the  tag  is  noted  the  date,  com- 
pound, gallons  and  tank  number,  and  the  tag  is  hung  up  on  the  tank. 
This  obviates  the  necessity  of  keeping  a  record  of  the  drugs  in  the 
tanks,  and  saves  labor,  annoyance  and  possibly  ruin  of  drugs,  by 
bottling  before  the  medicine  has  matured. 

When  the  foreman  of  the  bottling  department  wants  to  bottle 
a  given  medicine,  he  and  the  pharmacist  simply  refer  to  the  tags  on 
the  tanks.  If  a  tank  has  the  required  quantity  of  a  given  medicine, 
they  can  tell  at  a  glance  whether  it  has  matured  and  connect  it 
with  the  machines.  The  foreman  of  the  bottling  department  takes 
the  tag  down  and  hangs  it  at  the  machines  doing  the  bottling. 

To  obviate  the  necessity  of  counting  the  bottles,  trays  have  been 
made  to  hold  two  dozen  bottles  each.  The  tables  and  trucks  are 
marked  so  that  the  number  of  trays  indicate  the  quantity  by  the  space 
occupied  on  the  table. 

After  bottling,  the  workman  marks  the  number  of  bottles,  regis- 
ter number  (on  the  outside  of  the  case  from  which  the  bottles  are 
taken)  and  quantity  of  bottles  used  and  broken  on  the  portion  of  the 
tag  (Form  14)  for  that  purpose.  The  tag  is  torn  off  and  sent  to  the 
stock  clerk,  who  marks  off  the  quantity  of  bottles  on  the  stock  card 
(Form  No.  6)  ;  the  tag  is  then  returned  to  the  cost  clerk,  who  makes 
a  charge  to  the  cost  sheet  (Form  No.  13). 

After  making  the  charge  to  the  cost  sheet,  the  portion  of  the  tag 
which  was  returned  by  the  bottling  department  is  filed  in  the  envelope 
(Form  No.  12). 

The  tag  and  bottles  of  medicine  are  then  passed  on  by  the  bottler 
to  the  corking  department,  each  department  operating  independently 
and  sending  in  records  which  check  each  other. 

The  tags  are  all  filed  in  the  envelope  until  the  cost  sheet  is  com- 
pleted. The  cost  sheets  show  the  progress  of  the  work  in  all  depart- 
ments. 


148  ACCOUNTING    PRACTICE 

The  pay  roll  is  analyzed  weekly  according  to  order  numbers  and 
charges  for  labor  are  made  so  as  to  show  the  cost  of  each  operation. 

When  completed,  the  sheet  is  figured  and,  as  the  medicine  is  deliv- 
ered, the  delivery  is  recorded  on  the  cost  sheet.  The  number  of  the 
emulsion  is  stamped  on  the  bottle  and  carton. 

This  system  is  kept  by  a  stenographer  in  addition  to  doing  her 
regular  work  and  giving  accurate  costs. 

Working  Instructions 

In  devising  the  cost  system,  there  are  three  things  considered: 

First,  Material. 
Second,  Labor. 
Third,  Expense. 

Material.     (Received) 

When  the  material  is  received  in  the  receiving  department,  the 
goods  are  entered  in  a  receiving  book  and  registered  consecutively, 
as  hereinafter  described.  This  register  number  is  a  mark  of  identity 
which  follows  the  goods  all  through  the  factory  and  is  entered  on 
the  invoice  for  them  at  the  time  it  is  approved  by  the  receiving  clerk ; 
wherever  hereinafter  the  words  "  Register  Number  "  are  used,  they 
refer  to  said  number. 

Emulsions 

The  compounding  of  drugs  is  divided  into  emulsions.  If  one 
machine  is  operated  independently  of  the  other  machines  and  the 
product  of  that  machine  run  into  a  tank  separately,  that  is  one  emul- 
sion. If  two  or  three  machines  are  operated  collectively  and  the 
product  of  those  machines  run  into  one  tank,  that  is  one  emulsion. 
Each  emulsion  is  given  a  number  and  the  chemist  in  charge  of  the 
laboratory  has  an  envelope  (Form.  No.  12),  and  a  tag  (Form  No. 
14)  for  each  emulsion.  These  tags  and  envelopes  are  numbered  con- 
secutively and  for  each  set  consisting  of  one  tag  and  one  envelope, 
there  is  down  in  the  office  in  the  possession  of  the  cost  clerk,  a  cost 
sheet  (Form  No.  13),  with  a  number  corresponding  to  the  number 
on  the  tag  and  envelope  which  is  in  the  laboratory. 


COST    SYSTEMS  149 

Material  Consumed:  Drugs 

After  the  emulsion  has  been  compounded,  the  chemist  fills  out 
the  envelope  (Form  No.  13)  and  the  tag  (Form  No.  14),  which 
are  to  represent  that  particular  emulsion.  The  envelope  is  sent  to 
the  office,  but  the  tag  is  retained  in  the  laboratory  and  serves  as  a 
ready  reference  record  of  the  contents  of  that  particular  tank  until 
the  foreman  of  the  bottling  department  desires  to  commence  bottling 
out  of  that  tank.  At  that  time  the  foreman  of  the  bottling  depart- 
ment will  confer  with  the  chemist  in  the  laboratory,  receive  from 
the  chemist  said  tag  (Form  No.  14),  and  both  the  foreman  of  the 
bottling  department  and  the  chemist  will  see  that  the  proper  tank  is 
connected  with  the  proper  bottling  machines. 

Material  Consumed:  Sundries 

The  foreman  of  the  bottling  department  will  take  this  tag  to  his 
department  and,  after  the  emulsion  has  been  bottled,  the  register 
number  and  quantity  of  bottles  used  and  broken  in  bottling  this  par- 
ticular emulsion,  will  be  entered  on  the  tag  in  the  places  provided 
for  them  and  the  tag  will  be  passed  along  with  the  emulsion  to  the 
corking  department  where  it  is  corked.  After  the  emulsion  has  been 
corked,  the  register  number  and  quantity  of  corks  used  and  destroyed 
will  be  entered  on  the  tag  in  the  places  provided  for  them  and  the 
tag  passed  along  with  the  emulsion  to  the  labeling  department.  After 
the  emulsion  has  been  labeled,  the  quantity  of  labels  used  and  de- 
stroyed will  be  entered  on  the  tag  in  the  places  provided  for  them, 
and  the  tag  with  the  emulsion  will  be  passed  along  to  the  casing 
department.  After  the  emulsion  has  been  cased,  the  register  number 
and  quantity  of  cartons  and  pamphlets  used  and  destroyed  will  be 
entered  in  the  places  provided  for  them  and  the  tag  passed  along 
with  the  emulsion  to  the  packing  department  where  the  emulsion  is 
packed  and  the  number  of  packing  cases  used  is  entered  on  the  tag 
in  the  place  provided  for  it.  Immediately  after  the  emulsion  has  been 
packed,  the  foreman  will  take  the  tag  and  will  himself  count  the 
quantity  of  cases  and  loose  bottles  of  medicine  and  enter  the  num- 
bers on  the  tag  in  the  places  provided  for  the  finished  product.  When 
he  has  done  this  and  recorded  the  material  consumed,  as  hereinafter 
provided,  he  will  immediately  send  the  tag  to  the  cost  clerk. 


I50  ACCOUNTING   PRACTICE 

Cost  Clerk.     Material  Consumed:  Drugs 

When  the  cost  clerk  receives  the  envelope  (Form  No.  12),  she 
makes  the  extensions  of  the  value  of  the  drugs  on  the  envelope,  enters 
them  in  the  journal  of  charges  to  costs,  and  immediately  posts  them 
to  the  cost  sheet  (Form  No.  13),  w^ith  the  emulsion  number  corre- 
sponding to  the  emulsion  number  on  the  envelope  (Form  No.  12). 
(This  is  a  notification  to  the  office  that  this  emulsion  has  been  com- 
pounded and  the  cost  sheet  keeps  the  office  informed  regarding  the 
progress  of  the  work  on  the  various  emulsions.) 

Cost  Clerk.     Material  Consumed:  Sundries 

When  the  different  parts  of  the  tag  (Form  No.  14)  are  received 
by  the  cost  clerk,  she  makes  the  extensions  of  the  values  of  the 
material  on  the  tag,  enters  them  on  the  journal  for  charges  to  cost 
sheets,  and  immediately  posts  them  to  the  cost  sheet  (Form  No.  13) 
with  the  emulsion  number  corresponding  to  the  emulsion  number  on 
the  tag.  After  all  the  material  has  been  charged  under  the  heading 
of  "  Cost  of  Material,"  the  total  is  carried  to  the  summary  of  costs 
on  the  cost  sheet  (Form  No.  13). 

Labor 

Each  and  every  employee  in  the  factory  must  have  a  time  card 
(Form  No.  2)  which  is  filled  out  by  the  foreman,  or  under  the  direc- 
tion of  the  foreman  of  the  department.  On  this  time  card,  the  time 
spent  on  each  emulsion  is  entered  opposite  the  number  representing 
that  particular  emulsion  and  in  the  column  representing  the  day  of 
the  week.  At  the  end  of  each  week,  these  time  cards  are  sent  to 
the  cost  clerk. 

Cost  Clerk.     Labor 

When  the  cost  clerk  receives  the  time  cards  (Form  No.  2)  from 
the  various  foremen,  she  proceeds  to  calculate  the  value  of  the  time 
devoted  to  each  particular  emulsion,  and  after  she  has  calculated  the 
time  devoted  to  each  particular  emulsion,  the  cost  of  labor  on  each 
emulsion  is  charged  to  the  various  cost  sheets  (Form  No.  13)  by 
taking  each  time  card  separately  and  posting  from  that  time  card  to 


COST    SYSTEMS  i^i 

the  emulsion  cost  sheet  (Form  No.  13).  After  all  the  time  has  been 
charged  to  the  cost  sheets  (Form  No.  13)  she  will  make  a  summary 
of  the  factory  pay  roll,  and  with  the  results  shown  on  this  summary, 
she  will  prove  the  amount  charged  to  each  particular  cost  sheet. 

Expense 

There  are  three  classes  of  expense,  viz: 
General  and  Office  Expenses, 
Factory   Expenses,  and 
Machinery  Expenses. 

The  general  and  office  expenses  and  the  factory  expenses  are 
charged  to  the  cost  sheets  (Form  No.  13)  by  obtaining  from  the 
general  books  the  actual  amount  of  said  expenses  for  the  week  and 
distributing  them  on  the  various  cost  sheets  in  operation  during  the 
week,  considering  the  number  of  days  each  emulsion  was  in  operation 
in  the  factory.  An  entry  for  this  is  made  in  the  journal  for  charges 
to  costs,  and  from  there  is  posted  to  the  cost  sheets  (Form  No.  13). 

The  machinery  expenses  are  charged  to  the  cost  sheets  (Form 
No.  13)  by  obtaining  from  the  general  books  the  actual  amount  of 
said  expenses  for  the  week,  including  the  amount  provided  for  depre- 
ciation on  machinery,  and  the  total  for  that  week  is  distributed  on  the 
various  cost  sheets  representing  emulsions  which  were  compounded 
during  that  week,  considering  the  number  of  machines  in  operation 
on  the  day  the  emulsion  was  compounded  and  the  number  of  ma- 
chines operated  for  each  emulsion.  An  entry  for  this  is  made  in  the 
journal  for  charges  to  costs,  and  from  there  is  posted  to  the  cost 
sheets  (Form  No.  13). 

After  all  the  charges  under  the  heading  of  "  Summary  of  Costs," 
on  Form  No.  13,  have  been  made,  the  amount  column  is  footed  and 
the  result  is  the  actual  cost  of  production  for  that  emulsion. 

Shipments  of  Medicine 

When  the  medicine  is  prepared  for  shipment,  the  emulsion  num- 
ber of  the  medicine  used  is  marked  on  the  order  and,  when  these 
orders  are  returned  to  the  office,  the  cost  clerk  posts  to  each  cost 
sheet  (Form  No.  13),  the  shipments  of  medicine. 


1^2  ACCOUNTING    PRACTICE 

4.     Cost  System  for  a  Silk  Mill 

The  mill  in  question  buys  the  raw  silk,  sends  it  out  to  be  thrown 
and  dyed,  and  after  making  the  goods  which  are  a  mixture  of  cotton 
and  silk,  sends  them  out  again  to  be  finished. 

Filling  is  generally  cotton,  purchased  in  the  yarn,  and  is  also  sent 
out  to  be  dyed  as  required. 

Stock  cards  are  kept  to  show  the  location  and  disposition  of  the 
raw  silk  and  cotton  yarn,  and,  in  addition,  a  card  system  is  operated 
to  trace  each  piece  of  silk  goods  made. 

The  employee's  pay  is  made  up  in  individual  books,  which  are 
returned  to  the  office  weekly  to  make  up  the  pay  roll. 

A  warp  card  and  number  is  issued  for  the  making  of  the  warp, 
and  a  record  is  kept  on  it  of  each  warp. 

All  work  is  piece  work,  except  winding,  and  tickets  are  delivered 
for  work  done.  These  tickets  are  entered  in  the  employee's  pay  roll 
books,  and  the  tickets  are  returned  to  the  office.  (Tickets,  Forms 
15,  16,  17  and  18.)  . 

In  the  office  a  book  is  kept  of  the  work  done  in  each  department, 
and  all  goods  are  traced  in  detail;  because  silk  is  very  valuable  and 
must  be  accounted  for. 

The  warp  room  book  has  columns  for  warp  number,  lot  num- 
ber, yards,  weight,  ends,  rate,  warper's  name,  and  the  amount;  and, 
as  the  tickets  come  in,  they  are  entered  immediately  and  filed  away. 
Thus  the  warp  room  books  show  a  record  of  the  work  done  in  the 
warp  department  and  provide  a  permanent  record  of  the  silk  and 
warps  which  make  it  possible  to  trace  all  silk  from  the  purchase 
invoice  to  the  finished  goods. 

These  records  are  made  of  every  department  and  show  the  pro- 
duction of  each  department. 

The  records  verify  the  pay  roll,  because  the  pay  roll  of  each  de- 
partment must  agree  with  the  department  book,  considering  non- 
productive labor. 

The  winding  records  are  kept  according  to  the  pounds,  the  record 
being  kept  by  the  weigher  delivering  the  work  to  the  employee. 

A  rate  per  pound,  according  to  actual  experience,  is  charged  for 
winding. 


COST    SYSTEMS  153 

The  warper  delivers  the  finished  warp  and  receives  a  warp  ticket 
(Form  15),  which  is  entered  in  the  pay  roll  book  of  the  warper. 

The  twister  twists  the  warp  and  receives  a  ticket  (Form  16), 
which  the  time  clerk  enters  in  his  book. 

The  weaver  weaves  the  warp  and,  when  the  required  number  of 
yards  is  indicated,  a  cut  is  made. 

This  cut  is  given  a  number  by  placing  the  next  tag  (Form  18)  on 
it.  The  tags  are  numbered  consecutively,  and  the  tag  and  cut  are  sent 
to  the  inspector,  who  measures  and  examines  the  piece,  making  proper 
entries  on  Form  18  and  returning  the  weaver's  ticket  (Form  18 a) 
to  the  weaver,  who  has  the  ticket  (Form  18  a)  entered. 

The  weaver  also  puts  the  loom  card  on  the  piece  and  the  inspector 
enters  the  data  on  the  loom  card  (number  of  cut  as  per  card.  Form 
18)  and  returns  Form  18  a  and  the  loom  card  to  the  weaver. 

The  inspector  weighs  and  examines  the  piece.  His  time  is  non- 
productive and  charged  as  part  of  the  factory  expense.  This  is  be- 
cause the  time  spent  on  individual  pieces  is  uncertain  and  subject  to 
numerous  interruptions.  If  the  inspector's  time  can  be  charged  to  spe- 
cific pieces  it  should  be  done. 

The  burling  department  next  get  the  piece  of  silk  and  turn  in 
ticket  (Form  18 b)   for  the  work  done. 

The  piece  is  then  passed  on  to  the  sewing  department  and  the 
sewing  department  turns  in  ticket  (Form  18 c)  for  the  work  done. 

The  piece  is  sent  to  the  finisher,  who  returns  the  piece  with  a 
new  tag  (sales  tag)  and  also  the  old  tag   (Form  18  d). 

The  pay  roll  is  made  up  from  the  employee's  books  and,  if  it 
fails  to  agree,  can  be  easily  checked  with  the  office  record  of  work 
in  each  department.  The  office  record  is  simply  a  list  of  the  tickets 
which  come  in  daily  and  the  pay  roll  books  are  the  employee's  records ; 
consequently,  they  must  agree. 

The  main  object  is  to  see  no  silk  is  lost,  no  money  paid  for  serv- 
ice not  actually  performed,  to  provide  actual  costs,  and  to  keep  the 
office  informed  of  the  progress  of  the  work. 

The  costs  are  figured  on  Form  No.  19,  which  can  be  used  to  esti- 
mate a  basis,  by  the  same  process  as  figuring  actual  costs. 

The    results    of    each    warp    can    be    determined    by    sorting   the 

tickets,  and  the  cost  of  individual  pieces  determined  quickly,  by  figur- 
11 

/ 


154  ACCOUNTING   PRACTICE 

ing  the  warp  and  adding  to  the  proportionate  cost  fgr  warp  the  detail 
tickets  for  the  piece  of  silk. 

5.    Working  Instructions  for  Cost  System  for  Woolen  Mill 

The  objects  of  this  cost  system  are: 

First:       To  provide  a  means  of  computing  costs, 
Second:  To  prove  that  the  computations  are  correct,  and 
Third:     To  control  the  material  and  wages. 

The  important  controlling  weights  are  the  weights  mixed,  the 
weight  after  spinning,  the  weight  off  loom,  and  the  weight  of  finished 
product. 

Analysis  of  Accounting  (Divisions) 

Real  Accounts: 

Plant  and  Equipment. 

Capital. 

Cash. 

Receivables  and  Payables. 

Sales  Account. 
Expense  and  Supplies: 

General  Supervision  of  Business. 

Selling  Expenses. 

Mill  Expenses. 

Manufacturing: 

Making  Shoddy. 

Dyeing. 

Washing  and  Sorting  Wool. 

Mixing  to  Finishing. 

In  computing  costs,  the  departments  of  manufacture  are  divide  1 
as  follows: 

Prime  Costs: 

Taking  the  cleaned  raw  material  and  combining  all  opera- 
tions from  the  mixing  to  the  finishing,  except  dyeing, 
which  is  charged  as  a  supplementary  cost. 


COST    SYSTEMS  155 

Supplementary  Costs: 

(i)   Making  Shoddy. 

(2)  Dyeing. 

(3)  Sorting  and  Washing  Wool. 

There  are  three  classes  of  charges  considered  in  computing  prime 
costs : 

(a)  Cost  of  Raw  Material: 

(i)  Warp. 
(2)  Filling. 

(b)  Cost  of  Labor  (to  include  dyeing). 

(c)  Provision  for  Expenses: 

(i)   Mill  Expenses. 

(2)  General  Supervision  of  Business. 

(3)  Selling  Expenses. 

In  computing  the  prime  cost  charge: 

First:      The  Cost  of  Raw  Material. 

Second:  The  Cost  of  Wages  (which  include  Supplementary 
Dyeing). 

Third:  Add  to  the  total  amount  of  Raw  Material  and  Wages, 
a  percentage  (according  to  the  previous  year's 
business)  to  provide  for  all  expenses.  The  result 
is  the  cost  of  Manufacturing  and   Selling. 

Fourth:  Increase  this  amount  to  a  sum  sufficient  to  provide 
for  the  profit  desired,  in  order  to  get  the  selling 
price. 

No  prices  should  be  quoted  on  estimated  costs,  as  actual  results 
should  be  obtained  to  verify  all  estimates  before  quotations  are  made. 

Prime  Costs:   Manufacturing 
Material 

Charge  the  actual  (or  computed)  quantity  of  material  used  for 
warp  and  filling  at  the  cost  of  each  lot,  the  price  computed  in  the 
make-up  of  lots,  providing  for  the  handling  of  the  material  and  cost 
of  wool  sorting  and  washing,  and  waste.  This  is  a  basic  cost,  and 
should  be  the  value  of  the  material  to  be  used. 


iS6 


ACCOUNTING    PRACTICE 


Wages 

For  Mixing  and  Oiling,  use  the  original  weight  of  the  lots  mixed, 
at  the  average  cost  of  mixing  and  oiling  obtained  by  averaging  the 
production  and  wages. 

For  Carding  and  Spinning,  use  the  original  weight  of  each  lot 
mixed,  at  the  average  cost  of  carding  and  spinning:  If  a  new  lot 
is  put  in  operation,  a  test  can  be  made  or  the  actual  cost  can  be 
computed  by  keeping  the  record  separate  in  each  department  until  a 
satisfactory  basis  has  been  obtained. 

For  Dyeing,  Stock  or  Yarn:  The  charge  made  for  dyeing,  although 
included  with  wages,  must  be  the  cost  of  dyeing,  which  cost  will 
include  the  cost  of  dyestuffs,  expense  of  dyeing  and  dyehouse,  and 
wages  of  dyers  and  all  helpers. 

If  the  dyeing  is  done  before  carding,  the  weight  used  in  comput- 
ing the  cost  is  the  original  weight  of  the  lot  as  mixed  (unless  you 
desire  to  weigh  the  dyed  stock,  in  which  case  the  weight  of  the  dyed 
stock  should  be  used  in  making  the  charge  for  dyeing,  also  for  card- 
ing and  spinning). 

For  Twisting,  charge  the  actual  weight  delivered  to  the  twisting 
department  at  the  actul  cost  of  twisting,  as  per  pay  roll,  or  a  com- 
petent average  rate  shown  by  averaging  the  wages  and  production  of 
the  twisting  department.     (Allowing  for  waste.) 

For  Warp  Spooling,  charge  the  actual  weight  (which  is  obtained 
by  weighing  the  warp  after  spinning)  at  either  the  actual  wages  for 
warp  spooling  or  a  competent  average  rate  obtained  by  averaging  the 
wages  and  production  of  the  warp  spooling  department. 

For  Warp  Dressing  and  Drawing-in,  charge  the  actual  yards 
dressed  at  the  actual  wages  or  at  a  competent  average  rate  shown 
by  averaging  the  wages  and  production  of  the  warp  dressing  and 
drawing-in  department. 

For  Weaving,  charge  the  actual  yardage  off  the  loom  at  the  rate 
of  wages  paid  for  weaving,  adding  to  the  rate  for  weaving  an  average 
amount  for  the  expense  of  nonproductive  labor  in  and  in  connection 
with  the  weaving  department,  which  average  amount  will  be  obtained 
by  averaging  the  yards  produced  and  all  wages  paid  for  expense  of 
nonproductive  labor  in  connection  with  the  weaving. 

For  Burling  and  Sewing,  charge  the  actual  yards  off  the  loom  at 


COST   SYSTEMS  i^y 

a  competent  average  rate  obtained  by  averaging  the  production  and 
the  wages  for  the  burling  and  sewing  departments,  considering  the 
width  of  the  goods. 

For  Dyeing  in  the  piece,  charge  the  actual  yardage  after  dyeing 
or,  if  inconvenient  to  measure  after  dyeing,  charge  the  yardage  off 
the  loom  at  a  rate  which  must  be  computed  for  each  class  of  pro- 
duction. 

For  Finishing,  charge  the  finished  yardage  at  a  competent  average 
rate  obtained  by  averaging  the  finished  product  and  the  wages  of  the 
finishing  department,  considering  the  width  of  the  product. 

Expenses  and  Profits 

The  total  charge  for  raw  material  and  the  total  charge  for  wages, 
etc.,  are  added  together,  and  a  percentage  is  added  to  the  total,  to 
provide  for  all  mill  expenses,  general  expenses  and  selling  expenses. 
This  is  the  whole  cost  and  to  the  whole  cost  must  be  added  a  suffi- 
cient percentage  to  provide  for  the  profit  desired. 

No  Allowance  of  any  kind  should  be  made  for  waste  where  figures 
are  taken  from  actual  results  shown  in  manufacture.  Provision 
should  be  made  for  loss  in  cleaning  raw  material  when  making  the 
prices  for  raw  material. 

The  percentage  to  he  added  to  the  total  material  and  wages 
should  be  determined  by  considering  the  proportion  of  the  expenses 
to  the  production  during  the  prior  year's  business. 

Futures 

Where  costs  are  computed  on  goods  to  be  manufactured,  suffi- 
cient allowance  must  be  made  for  waste,  in  the  various  operations, 
and  before  any  prices  are  quoted,  said  allowance  made  for  waste, 
in  the  various  departments  of  manufacture,  should  be  verified  by 
actual  weight. 

Wool  Sorting  and  Washing 

The  cost  of  wool  sorting,  washing  and  all  expense  necessary  to 
produce  clean  stock  should  be  separated  from  the  manufacturing 
account  and  added  to  the  purchase  price  of  the  wool,  in  order  to 
obtain  the  cost  of  the  cleaned  wool  which  is  a  supplementary  cost. 


158 


ACCOUNTING   PRACTICE 


Rag  Sorting  and  Picking  Shoddy 

The  cost  of  rag  sorting  and  picking  shoddy,  and  all  wages  and 
expenses  in  connection  with  the  manufacture  of  shoddy  should  be 
separated  from  the  manufacturing  account,  in  order  to  show  the  cost 
of  manufacturing  shoddy,  which  is  a  supplementary  cost. 

Analyzing  Wages 

In  analyzing  the  wages,  the  various  departments  should  be  sepa- 
rated as  follows  (by  simply  grouping  the  names)  : 

Making  Shoddy 

Rag  Sorting  and  Picking  Shoddy. 

Dyeing 

Dyeing  Raw  Material  or  Yarn. 
Dyeing  in  Piece. 

Manufacturing 

Mixing  and  Oiling. 

Carding  and  Spinning. 

Twisting. 

Warping. 

Weaving  and  Expense. 

Burling  and  Sewing. 

Finishing. 

General  Expense 

Office  Help. 
General  Help. 

Plant  and  Equipment 

New  Houses. 
Improvements. 

Wages  in  Departments 

In  the  weaving  department  all  nonproductive  wages  for  foremen, 
helpers  and  all  persons  employed  in  the  department,  excepting  weav- 
ers on  production  weaving,  are  grouped  on  the  pay  roll  under  the 
heading  of  weaving  expense. 


COST    SYSTEMS  i^g 

In  all  other  departments  the  wages  of  every  employee  in  the 
department  are  included  as  part  of  the  wages  of  the  department  in 
which  they  are  engaged. 

Under  general  help  include  only  employees  that  cannot  be  charged 
against  any  particular  department,  such  as  yard  hands,  watchmen, 
etc.,  excepting  such  as  are  specially  provided  for. 

The  Proof  of  Wages 

The  amount  of  wages  charged  by  the  superintendent  in  computing 
costs  can  be  verified  by  striking  an  average,  considering  the  summary 
of  the  reports  of  production  and  wages  for  the  departments. 

And  annually  the  summary  of  the  production  and  wages  reports 
should  not  exceed  the  production  for  the  year  when  the  goods  in 
process,  in  each  department  at  the  beginning  and  end  of  the  period, 
are  considered. 

To  Prove  the  Wool  Consumption 

The  total  amount  of  wool  used,  as  shown  by  summarizing  the 
record  of  the  mixing  department  book,  should  equal  the  consumption 
for  the  year,  as  shown  by  the  wool  account  in  the  private  ledger. 
Add  to  the  inventory  of  wool  on  hand  January  ist  the  purchases  of 
wool  for  the  year  and  from  this  amount  deduct  the  inventory  of  wool 
on  hand  December  31st;  the  result  thus  obtained  should  equal  the 
amount  of  wool  consumed  as  per  mixing  room  record.  (Considering 
waste. ) 

To  Prove  the  Consumption  of  Cotton 

The  total  amount  of  cotton  used  during  the  year  as  shown  by 
summarizing  the  record  of  the  mixing  room  should  equal  the  cotton 
consumed,  as  shown  by  the  cotton  account  in  the  private  ledger. 
(Considering  waste.) 

To  Prove  the  Consumption  and  Manufacture  of  Shoddy 

The  inventory  in  pounds  of  shoddy  on  hand  January  ist  plus  the 
pounds  of  shoddy  manufactured,  less  the  inventory  in  pounds  on 
December  31st  (following),  should  equal  the  shoddy  consumption  as 
shown  by  the  summary  of  the  record  of  the  mixing  room. 


i6o  ACCOUNTING    PRACTICE 

In  taking  account  of  stock  in  process  at  the  end  of  each  period, 
the  weights  and  numbers  of  the  stock  in  process  in  the  following 
departments  should  be  shown  separately : 

Carding  and  Spinning, 

Twisting, 

Warp  Spooling, 

Warp  Dressing  and  Drawing-in, 
and   in   the   following  departments   the   numbers,  yards   and   weight 
should  be  shown  in  detail: 

Weaving, 

Burling  and  Sewing, 

Wet  and  Dry  Finishing, 

Piece  Dyeing. 

Manufacturing  Shoddy  {Supplementary  Cost) 

The  manufacture  of  shoddy  must  be  kept  entirely  separate  and 
treated  as  an  independent  business  (except  in  regard  to  fixed  charges 
and  general  expenses),  in  order  to  obtain  the  cost  of  making  shoddy 
to  compare  with  the  cost  of  shoddy  purchased. 

(i)  All  purchases  made  for  the  shoddy  department  should  be 
charged  to  the  shoddy  account  during  the  year. 

(2)  All  wages  in  connection  with  the  manufacture  of  shoddy 
should  be  separated  on  the  semimonthly  report  of  production  and 
pay  roll,  and  charged  to  the  shoddy  account  at  the  end  of  the  year. 

(3)  A  record  should  be  kept  of  the  shoddy  manufactured. 

At  the  beginning  of  the  year  the  shoddy  manufacturing  account 
is  charged  with  the  inventory  of  shoddy  making  material. 

Add  to  the  inventory  of  January  ist  all  purchases  and  deduct 
from  the  total  obtained,  the  inventory  of  shoddy  making  materials 
on  hand  December  31st;  the  resultant  will  be  the  material  consumed 
in  making  shoddy. 

The  consumption  of  each  class  of  material  can  be  obtained  by 
compiling  them  separately,  and  the  total  results,  if  correct,  will  equal 
the  resultant  obtained. 

To  the  material  consumed  in  making  shoddy  add  the  wages  of 
the  shoddy  department  for  the  year. 

Divide  the  total  by  the  number  of  pounds  of  shoddy  produced 


COST    SYSTEMS  i6i 

and  the  result  will  be  the  average  cost  of  manufacturing  shoddy  for 
the  year. 

Dyeing  {Supplementary  Cost) 

The  average  labor  cost  of  dyeing  either  the  raw  material,  yarn  or 
piece  goods,  can  be  used  in  computing  costs  if  desired ;  or 

Test  lots  may  be  put  in  operation,  in  order  to  obtain  competent 
rates  to  be  charged  for  wages;  or 

Actual  wages  for  dyeing  can  be  charged  by  keeping  a  record  of 
the  wages. 

Material:  The  costs  of  dyestuflFs  vary  so  extraordinarily  that  the 
cost  and  quantity  of  dyestuffs  must  be  considered  in  computing  the 
cost  of  material  used  in  producing  certain  results.  For  this  reason, 
when  compiling  the  cost  of  dyeing,  the  first  cost  of  dyeing  must  be 
obtained  by  computing  on  actual  results;  thus: 

Dyeing: 

Material  (Dyestuffs  consumed)   $ 

Wages  (actual  or  average) $ 

Expenses  and  Supplies   (average) ,$ 

Total  Cost $ 

Divide  the  total  cost  by  the  number  of  pounds  and  the  result  is 
the  cost  of  dyeing  per  pound. 

The  cost  of  each  cloth  is  figured  on  Form  No.  37. 


6.     Outline  of  Cost  System  for  Lithographing  Company 

The  elements  of  costs  will  be  assembled  on  cost  sheets,  and  these 
cost  sheets  will  be  kept  in  two  binders: 

(i)   Cost  Sheets  in  Operation. 
(2)  Completed  Cost  Sheets. 

The  cost  sheets  in  operation  will  be  considered  always  as  a  unit, 
and  a  controlling  account  will  be  kept  in  the  ledger,  showing  the 
value  of  the  costs  in  operation.     If  the  cost  sheets  in  operation  are 


i62  ACCOUNTING    PRACTICE 

scheduled  at  any  given  time,  the  total  of  same  should  be  the  equiva- 
lent of  the  balance  of  the  ledger  account  for  work  in  process. 

Each  week  should  commence  with  this  balance,  which  should  be 
the  total  value  (or  cost)  of  work  in  process. 

Charges  should  be  made  to  the  cost  sheets  in  operation  through 
the  cost  department  journal,  so  that  the  cost  department  journal  will 
show  the  amount  which  was  charged  to  cost  sheet,  and  an  analysis 
of  this,  so  that  the  proper  accounts  can  be  credited  with  the  total  of 
the  items  which  were  charged  to  the  cost  sheets. 

The  cost  sheets  completed  during  the  week  should  be  scheduled 
in  detail  on  form  number,  classifying  the  cost  sheets  according  to  the 
number  of  sheets  in  the  hill, 

A  recapitulation  should  be  made  of  this  classification,  which 
should  give  the  total  amount  of  the  cost  sheets  completed  during 
the  week.  Deducting  this  total  from  the  total  of  the  cost  sheets  in 
operation  should  leave  the  balance,  which  should  be  the  work  in 
process. 

Material 

The  material  should  be  charged  to  the  cost  sheets  as  delivered  at 
actual  cost  value,  but  can  be  charged  to  the  cost  sheets  when  the  order 
is  completed  if  it  is  more  desirable. 

Labor  (also  Department  and  General  Expenses) 

The  pay  roll  should  be  analyzed  weekly  according  to  departments, 
and  the  factory  and  general  expenses  distributed  over  the  depart- 
ments.    (Form  No.  ii.) 

The  cost  sheets  for  the  departments  operated  as  a  whole  should 
be  charged  with  the  pay  roll  for  the  department,  plus  its  relative 
proportion  of  expenses. 

The  pay  rolls  of  the  press  rooms  should  be  analyzed  according 
to  the  classification  of  presses^  and  the  amount  chargeable  to  each 
class  of  presses,  plus  its  relative  proportion  of  expenses,  should  be 
charged  to  the  cost  sheets  for  the  classes  of  presses. 

The  pay  rolls  of  the  departments  operated  according  to  order 
numbers  should  be  made  up  to  show  the  amount  of  productive  labor 
chargeable  to  each  and  every  order  number,  the  proportion  of  the 


COST    SYSTEMS 


163 


expenses  chargeable  to  the  department  should  be  prorated  over  the 
order  numbers  of  that  department,  and  the  amounts  charged  to  the 
individual  cost  sheets  for  the  orders. 

Selling  Expenses 

The  selling  expenses  should  be  charged  to  the  cost  sheets  after  all 
other  elements  of  cost  have  been  determined  by  adding  a  percentage, 
considering  the  ratio  of  the  selling  expense  to  the  whole  cost. 

Details  of  Cost  System 

Classification  of  Original  Expense 
The  various  expenses  of  the  business  will  be  analyzed  to  show 
primarily : 

(i)   Pay  Roll. 

(2)  Material. 

(3)  Reserve  and  Long  Term  Expenses. 

(4)  Departmental  Expenses. 

(5)  General  Factory  Expenses. 

(6)  General  Expenses. 

(7)  Selling  Expenses. 

(8)  Sales  Office  Expenses. 

The  prime  cost  is  the  labor,  and  the  distribution  of  the  factory 
and  general  expenses  should  be  made  according  to  the  ratio  they  bear 
to  the  labor,  considering  previous  experience. 

Material 

All  material  purchased  should  be  charged  to  the  material  account. 
Under  the  heading  of  material  should  be  classed  all  articles  charged 
to  cost  sheets,  such  as  paper,  etc.,  which  become  a  component  part 
of  the  product.  The  material  will  be  charged  direct  to  the  cost  sheets 
immediately  upon  delivery  from  the  delivery  ticket,  and  at  the  actual 
cost  of  the  material. 

Pay  Roll 

The  pay  roll  account  should  be  charged  with  the  entire  amount 
of  the  pay  roll. 


1 64 


ACCOUNTING    PRACTICE 


Distribution  of  Pay  Roll  and  Unapplied  Expense.     (Form   11) 

The  pay  roll  of  the  departments  operated  according  to  order  num- 
bers should  be  set  up  on  Form  No.  ii,  to  show  the  amount  of  pro- 
ductive labor  and  unproductive  labor,  and  the  other  departments 
should  show  only  the  total  labor  for  the  department. 

Unproductive  Labor 

The  amount  of  the  unproductive  labor  in  each  department,  oper- 
ated by  order  numbers,  should  be  added  to  the  proportion  of  depart- 
ment expense,  factory  expense,  and  general  expense,  the  ratio  of  the 
whole  to  the  productive  labor  should  be  computed,  and  the  productive 
labor  plus  its  percentage  of  the  expenses  should  be  charged  to  each 
and  every  order  number. 

Departmental  Expenses 

This  classification  should  include  all  expenses  chargeable  to  the 
departments  for  supplies  used  in  process  of  manufacture,  which  do 
not  enter  directly  into  the  product  as  a  component  part  of  same, 
such  as  alcohol,  benzine,  brooms,  mops,  brushes,  oils,  etc. ;  also  heat, 
light  and  power;  building  and  machinery  repairs;  reserve  for  depre- 
ciation; and  insurance  and  taxes. 

Subanalysis  of  Departmental  Expenses 

A  subanalysis  will  be  made  to  determine  the  amount  chargeable 
to  all  departments,  and  the  amount  chargeable  to  particular  depart- 
ments for  specialties  used  only  by  certain  departments. 

Heat,  Light  and  Power 

The  cost  of  heat,  light  and  power  will  be  based  on  the  previous 
year's  expenses,  and  distributed  over  the  departments  according  to  the 
requirements  of  each  department,  and  be  a  part  of  the  departmental 
expense. 

Building  and  Machinery  Repairs 

The  cost  of  building  and  machinery  repairs  will  be  based  on  the 
previous  year's  expenses,  and  distributed  over  the  departments,  the 


COST   SYSTEMS  165 

building  repairs  according  to  floor  space,  and  the  machinery  repairs 
according  to  the  actual  report  of  repairs  in  each  department;  the 
totals  will  be  a  part  of  the  departmental  expenses. 

Reserve  for  Depreciation 

The  reserve  for  depreciation  on  plant  and  equipment  should  be 
based  on  the  valuation  and  possible  life  of  properties  in  the  respective 
departments,  and  included  as  a  part  of  the  departmental  expense. 

Insurance  and  Taxes 

The  cost  of  insurance  and  taxes  on  plant  and  equipment  will  be 
based  on  the  previous  year's  expense  and  distributed  over  the  depart- 
ments; the  insurance  on  buildings  according  to  floor  space;  the  in- 
surance on  machinery,  etc.,  according  to  valuation  of  same  in  the 
departments;  and  the  insurance  on  the  stock  in  warehouse  will  be 
charged  to  general  expense. 

General  Factory  Expenses 

This  classification  should  include  all  expenses  of  manufacture, 
common  to  all  departments ;  the  salary  and  expenses  of  the  factory 
superintendent,  and  his  office  staflF;  the  salary  and  expenses  of  the 
cost  department ;  heat,  light  and  power  for  elevators,  etc.,  which 
cannot  be  applied  to  any  department;  insurance  and  taxes;  teaming; 
insurance  on  raw  material  and  sundry  supplies  not  chargeable  to 
departments;  accidents,  etc. 

General  Expenses 

This  classification  should  include  all  expenses  of  a  general  char- 
acter, such  as  salaries  and  expenses  of  officers  and  general  office 
staff;  stock  clerks;  in  fact,  all  expense  incurred  by  the  management 
in  the  supervision  of  the  business,  and  also  their  proportion  of  the 
New  York  (Executive)  office  expenses. 

Selling  Expenses 

Under  this  classification  should  be  included  all  selling  expenses  of 
every  character,  except  sales  office  expenses,  which  should  be  treated 
as  follows: 


i66  ACCOUNTING    PRACTICE 

Sales  Office  Expenses 

If  a  sales  office  is  maintained,  a  special  account  should  be  main- 
tained for  same,  and  all  expenses  incurred  by  the  office  should  be 
charged  against  the  account.  The  selling  expenses  will  be  subdivided 
by  discriminating  between  booking  and  shipping  expenses.  To  deter- 
mine the  percentage  which  is  to  be  added  to  the  cost  sheets,  for 
selling  expenses,  ascertain  the  percentage  of  the  selling  expenses  to 
the  whole  cost,  exclusive  of  selling  expenses,  by  deducting  the  total 
selling  expenses  from  the  whole  cost,  and  dividing  the  selling  ex- 
penses by  the  resultant. 

Making  Up  Pay  Roll  for  Departments  Operated  According  to 
Orders 

The  pay  roll  of  departments,  operated  according  to  order  num- 
bers, should  be  analyzed,  and,  after  determining  the  amount  charge- 
able to  each  and  every  order,  prorate  the  expenses  (including  unpro- 
ductive labor)  over  the  orders,  so  that  the  total  amount,  being 
charged  against  orders,  is  the  equivalent  of  the  department's  pay  roll 
and  its  relative  proportion  of  expenses  as  per  Form  1 1 .  The  charges 
should  be  made  to  the  individual  cost  sheets  from  the  analysis  sheet, 
and  the  results  entered  in  the  cost  journal. 

Making  Up  Pay  Roll  for  Press  Room 

The  productive  labor  of  the  press  rooms  should  be  analyzed  ac- 
cording to  class  of  presses,  and  the  expenses  prorated  over  the  labor, 
chargeable  to  each  and  every  class  of  presses. 

The  charges  against  classes  of  presses  are  made  to  the  cost  sheets 
for  the  different  classes  of  presses  through  the  cost  journal. 

Pay  Roll  of  Departments  Operated  as  a  Whole 

The  pay  roll  of  the  departments  operated  as  a  whole,  and  the 
relative  proportion  of  expenses,  as  per  Form  No.  ii,  should  be 
charged  to  the  cost  sheets  for  the  departments  through  the  cost 
department  journal. 


COST    SYSTEMS 


167 


Preparation  of  Inventory 

In  preparing  the  inventory  the  different  items  should  be  classified 
as  follows: 

Material. 

Department  supplies. 

Factory  supplies. 

General  expense  supplies. 

Building  and  machinery  repair  supplies. 

Heat,  light  and  power  supplies. 

Selling  expense  supplies. 

Reserve  and  long  term  expenses. 

Work  in  process. 

Finished  product. 

Merchandise.  , 

Do  not  confuse  the  different  classes  by  putting  them  on  the  same 
sheet,  for  no  two  classes  of  articles  should  appear  on  the  same  in- 
ventory sheet,  except  when  making  a  summary  of  the  total  inventory. 
This  summary  should  show  the  total  amount  of  each  class,  except 
department  expense  supplies,  which  should  be  set  up  to  show  the 
amount  chargeable  to  each  department. 

Material 

Under  the  heading  of  *'  Material  "  should  be  classed  all  articles, 
such  as  paper  and  ink,  which  become  a  component  part  of  the 
product. 

Department  Supplies 

Under  the  heading  of  **  Department  Supplies  "  should  be  classed 
all  articles  used  by  departments,  which  can  be  consistently  charged 
against  the  departments  because  they  are  used  by  the  department  and 
not  an  expense  of  all  departments. 

Factory  Supplies 

Under  the  heading  of  "  Factory  Supplies  "  should  be  classed  all 
articles  which  are  necessary  to  the  operation  of  the  factory  in  general, 
which  cannot  be  charged  to  particular  departments. 


i58  ACCOUNTING   PRACTICE 

General  Expense  Supplies 

Under  the  heading  of  "  General  Expense  Supplies "  should  be 
classed  all  articles  of  a  general  character  not  applying  directly  to  the 
manufacturing,  such  as  office  supplies,  etc. 

Building  and  Machinery  Supplies 

Under  this  heading  should  be  classed  all  articles  such  as  lumber, 
belting  and  parts  of  machinery  which  are  renewals  and  replacements, 
except  such  as  are  to  be  used  by  the  heat,  light  and  power  depart- 
ments. 

Heat,  Light  and  Power  Supplies 

Under  the  heading  of  "  Heat,  Light  and  Power  Supplies  "  should 
be  classed  all  articles  which  are  necessary  to  the  operation  of  the 
plants  generating,  transmitting  and  distributing  the  heat,  light  and 
power. 

Selling  Expense  Supplies 

Under  this  heading  should  be  classed  all  articles  used  by  the  sell- 
ing departments. 

Reserve  and  Long  Term  Expenses 

A  detailed  account  of  each  and  every  item  composing  these  ac- 
counts should  be  shown,  giving  sufficient  detail  to  enable  the  book- 
keepers to  distribute  the  items  over  the  months  during  which  the 
expense  accrues  or  expires. 

Work  in  Process 

Under  this  heading  should  be  scheduled  each  and  every  cost  sheet 
for  work  in  process,  and  this  schedule  should  show  the  total  charges 
with  an  analysis  of  their  composition  (namely,  material,  labor,  ex- 
penses, etc.)  ;  the  deliveries  made  should  aso  be  shown  with  the  esti- 
mated cost  and  value  of  said  deliveries. 

The  cost  sheets  should  be  closed  as  at  the  time  the  inventory  is 
taken ;  but,  before  the  closing  is  made,  all  charges  should  be  entered 
on  same  for  work  up  to  that  time,  and  for  material  issued.    The  pay 


COST    SYSTEMS 


169 


roll  should  be  figured  to  date  and  charged  as  customary  during  the 
previous  year. 

Finished  Product 

Under  this  heading  should  be  classed  all  articles  which  were  manu- 
factured and  are  finished  product  ready  for  the  market. 

Merchandise 

Under  this  heading  should  be  classed  all  articles  which  were  pur- 
chased to  sell  and  which  are  not  manufactured,  worked  or  reworked. 


12 


PART    III 
OPERATING    FORMS 


Form  No.  i. — Time  Card 


NON-PRODUCTIVE   LABOR 
Time  Clock  Number 

Date 

Pate  ner  week                       :    DflV                       ;    Hour                            ; 

WorkiDf  00 

Hours 

Amount 

Check 

' 

173 


Form  No.  ia. — Time  Card 


PRODUCTIVE  LABOR 


Employees  Number. 


Charge  Order  No. 


Time  Started 


Time  Finished 


Hours 


Rate  per  Hour 


Amount 


Posted 


Remarks : 


Date  will  be  stamped  here  by  office 


74 


Form  No.  2 — Weekly  Time  Card 


Employe's  No.. 
Name 


Depmt. 
$- 


Rate 


-per  day 
per  hour 


Week  ending. 


Order 
Numbers 


Non-productive 


Totals 


f 


ff 


Don't 

Write 

Here 


Amount 


175 


Form  No.   3— Cost  Department  Copy 
Receiving  Book 


Purchas 

Bought 

Receive 

e  De 

nt.  No. 

Res'ister  No. 

nf 

d                                                                       Location 

Register 
Number 

Marks 

Quantity 

Particulars 

Rate 

Per 

Amount 

1 

bo 

G 

*55 

> 

p. 

PS 

1^ 

Deliveries 

Order  No. 

Quantity 

Order  No. 

Quantity 

Order  No. 

Quantity 

176 


Form  No.  4- 

—Work  Order 

S 

C 

e 
•c 

& 
5 

t/3 

u 

<u 

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Q 

"^  ^ 

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25     ?. 

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il   work   to   be   done, 
write  on  this  form  th( 

hi 

^  «.•  «• 

1 

«  0 

5 

vA 

i 

U     M        -, 

77 


Form  No.  5— 

-Work  Order 

- 

■*iJ 

C 

4> 

•0 

c 

4) 

•<-> 

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'C 

4> 

a 

3 

t/) 

d 

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5 

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178 


Form  No.  6 — Stock  Card 


Register  No. 


Description 


Record  of  Goods  Received 


Location 


Date 

Cost  $ 

Added  Charges 


Rate  $ 


per 


Nnmber  Quantity  Amount 


Deliveries 


Order  No.        Quantity         Amount 


179 


Form 

No.  7— 

Cost  Sheet 


•s 


E 
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Order  Tag 

Order  Issued 

Carton  Order  No.  ^iSS 

Cnmhining  Order  IsKued 

Rotary  Machine: 

Cnmmpnrerf                                                IQt 

Notes: 

Machine  No.  _ 

Operator  No.. 

Counting  Macli 

At  Finish 

At  Start 

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Coui 

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Commenced                                   IM 

Notes: 

Machine   No.  _ 

Operator  No.- 

Counting  Mach 

At  Finish^ 

At  Start  - 

Cout  _ 

<► 

ine  Registered : 

PRINTING  ORDER                                              Order  No. 

2155 

WRAPPER  ORDER                                             Order  No. 

2155 

Form  No. 

9 — Charge  Slip.     (Misc.) 

CHARGE   0">riPi>   Nn 

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Rate 

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Weight 

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MEDICIINR 

Machines  No.   1,  2,  4,  5,  6,  7,  8,  9,  10,  li,  12,  13,  14,  15,  16,  17,  18,  19 

Cost  of  Material 

unt 

Cost  of  Labor 

Reg. 
No. 

Qtty. 

Material 

Rate 

Amo 

No. 

Department 

Hrs. 

Rate 

Amount 

Bottles,  Large  Used 

Laboratory 

"      Broken 

> 

"       Small  Used 

"      Broken 

Bottling 

Corks,  Large  Used 

"      Broken 

"      Small  Used 

Labeling 

"      Broken 

Labels,  Large  Sets  Used 

"      "  Broken 

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"      "  Broken 

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1 

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"     Destroyed 

Casing 

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"     Destroyed 

Packing 

Packing  Cases,  Large 

"      Small 

Total      Material 

Labor        ^ 

Production: 

Large 

Small 

86 


Tank  No.. 
Gallons  _ 


Emulsion   No.      ^^5^ 
Compounded 


Commenced   Bottling 


Summary  of  Costs 


Particulars 


Drugs:  Machines  @ 


Material 


Labor 


Expense 


Amount 


Shipments  of  Medicine 


Shipping 
Number 


Order 
Number 


Urge 


Small 


Cost  per  bottle: 

Large 

Small 


Completed: 


190 


87 


/Emu 
No.  ^ 

Compound 
Compound 

Ision 
»050 

— 

- 

Tank  No. 
Gallons_ 

— 

-\ 

Form 
No.  14 — 

ed 

Order  Tag 

Large 

Small 

Cases 

Quantity 

Cost 

Value 

Loose 
Bottles 

Large 
Small 

Packed 

Emulsion   No.  6050.      Pamphlets  and  Cartons 

Pamphlets 

Reg.  No. 

Rate 

Used 

Value 

Destroyed 

Value 

Large 

Small 

Cartons 

Large 

Small 

Emulsion   No.  6050.      Labels 

11 

Rate 

Quantity  Ruined 

Large 
Sets  Used 

Per  Set 
$ 

"5 

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Per  Set 
$ 

J 

Emulsion  No.  6050,     Corks 

Reg.  No. 

Cost 

Used 

Value 

Destroyed 

Value 

Large 

Small 

Emulsion  No.  6050.     Bottles 

Reg.  No. 

Cost 

Used 

Value 

Destroyed 

Value 

Large 

Small 

188 


Form  No.    15 


Warp  No. 

Yards 

Ends 


Warper's   No. 


Warper  Ticket 

Lot   No. 

Weight. 

Rate,  $  _ 


Amount,   $ 


Form  No.    16 


Warp  No. 

Twister  Ticket 

Loom    No. 

Ends 
Twister's   No. 

Rate,  $ 
Amount,    $ 

Form  No.    17 


Picker  Ticket 

Factory  Piece  No. 

Yard* 

Width 

Rate,   $ 

Amount,    $ 

Picker's   No. 

Approved 

189 


Form 
No.  i8D 


Factory  Piece  No,  II71 
Style  No 


Finished  No. 


Finished    Weight 

Finished  Yards 

Weaver's   No 

Loom   No 

Weight 

Yards 


Form 
No.  18  C 


Form 
No.  18  B 


Sewing  Ticket 

Factory  Piece  No.  II7I 

Sewer's   No. 

Yards 


Burling  Ticket 

Factory  Piece  No.  II7I 

Employe's   No. 

Yards 


Form 
No.  18  A 


Weaving  Ticket 

Factory  Piece  No.   II7I 

Weaver's  No. .. Cut. 

Yards 


[90 


Form  No.    19 — Cost  Sheet 

Basis:  Raw  Silk  @  $        per  pound.    Quality  No, 


Yards 


Weight 


Width 


Make  up  of  Warp 
Ends 
Yards 


Make  up  of  Filling 
Picks 
Width 


Reed 

Disposition 


Skeins 

Per   cent,  added   for 
profits % 


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Warp 


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Throwing. 

Dyeing 

Filling 


Dyeing. 


Wages 

Winding  Silk lbs.  @. 

Winding  Cotton ♦« 

Warping «* 

Twisting « 

Weaving yds.  @. 

Picking *• 

Burling ♦* 

Sewing " 


Total  Productive  Labor 
Non-productive  Labor 


Finishing. 


.yds. 


Refinishing. 
Scouring 


Piece  Dyeing. 


Total  Material  and  Wages 
Expense  Loading 


Cost  of  Product. 


Cost  of  100  Yards 
Sell  for 


.% 


% 


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per  yd. 


191 


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F.   W.   r.RowN  &  Co.   Account 


Ledger 


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1903 

Jan.  I 

Balance  L 

171 

10  701.50 

Jan.  25 

Cash 

174 

4  000.00 

15 

Mdse. 

305 

710.60 

31 

ti 

180 

I  701.50 

20 

it 

315 

91.60 

Feb.  24 

BillsRec.J 

315 

5  000.00 

25 
26 

Freight  C 

370 
175 

I  191.52 
19.20 

27 

Cash 

202 

3  3M-50 

27 

Mdse. 

390 

410.20 

/ 

29 

it 

395 

910.60 

/ 

Feb.  7 

It 

410 

92.10 

/ 

9 

n 

415 

191.70 

/ 

17 

Interest  J 

337 

125.00 

/ 

17 

Mdse. 

435 

71.60 

/ 

19 

440 

192.60 

/ 

27 

470 

I  605.71 

/ 

Mh.  28 

563 

91.20 

/ 

31 

608 

97.41 

/ 

Apl.  10 

619 

110.72 

/ 

22 

635 

89.25 

/ 

28 

710 

601.83 

/ 

28 

711 

191.27 

/ 

May  I 

Forward 

6 

17  49561 

Forward 

14  016.00 

207 


Form  No.   33 — Monthly  Statement 


I.edger 
Folio 

Balance  Sheet 
Accounts 

Entries  for  Month 

1 

i 

Trial  Balance 

Debits 

1 
Credits 

1     Debits 

Credits 

Capital 

Cash 

Purchase   Ledger 

Sales  Ledger 

Petty  Ledger 

Bills  Receivable 

Bills  Payable 

Furniture  and  Fixtures 

Merchandise:  Inventory 

Wholesale 

Retail 

1 

Totals 

General   Expenses 
Wholesale  Department 
Retail  Department 
Profit  and  Loss 
Dividends 
Surplus 

1 

Totals 

1 

' 

208 


Ledger 
Folio 

Income  and  Expense          Entries  for  Month 

Trial  Balance 

Accounts 

Debits 

1 
Credits 

Debits 

Credits 

General  Expenses 
Office  Salaries 
Sundry  Expenses 
Rent 

Heat,  Light  and  Power 
Taxes 
Insurance 
Cartage 
Transportation 
Totals 

Interest  on  Notes 
Disc't  on  Sales  and  Purchases 
Balance 

Totals 

Wholesale  Department 
Wholesale  Wages 
Transportation 
Cost  of  Sales 
Sales 

Salesmen's  Salaries 
Salesmen's  Expenses 
Balance 

1 

i 

I 

1 

1 

Totals 

Retail  Department 
Cost  of  Sales 
Sales 
Wages 
Advertising 
Balance 

1 

Totals 

209 


Form  No.    34 — Voucher  Register 


•0 

4> 

1 

c  :5 
2i  "c 

t;  0 

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6 

. 

2 

s. 

4> 

Od 

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0 

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0 

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w 

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0 

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t 

S 

g 

0 

e 

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4> 

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ctf 

>^ 

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<u 

CIi 

E 

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Z 

a 

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8 

< 

^ 

Jc  0 

-'^Z 

> 

9i 

ts 

Q 

Form  No.  35. 

price  to  sell: 


Cfeik. 


-AlblMd- 


DATB  EXECUTED. 


B«»ed  on:    Cost  Sheets  of Mill  for  quarter  ending 

Cost  of  Cotton  Porchased  @ 

Figured  on  pounds  of  Cloth  Mannfactnred.     Made  on 

Warp  Yarn  No Sley FiUing  Yarn  No Picks. 


190 

per  pound 
Loom 


Length  of  Warp  prepared         - yards  to  produce.        .._  .„... yards 

of  Cloth 

u 

Warp  Yarn :     Requires                               %  ^                                         per  pound 

1 1 

(Allowing  for  Waste  by  Charging  quantity  used  during  quarter) 

M 

1^ 

FUlmfYam:     Requires                             %  &                                        per  pound 

IS 

(Allowing  for  Waste  by  Charging  quantity  ated  during  quarter) 

-f\ 

i\ 

Weaving:     100  pounds  of  Manufactured  Cloth  Q                                   per  pound 

£  i 

Total  Coat :     100  pounds  of  Manufactured  Cloth 

Blaackinc:                                                                                            Cost  per  yard 

Pmialunc  A  BookfpUii^:                                                                Cost  per  yard 

Trinuninc  tt  Papcrinc.-                                                                      Cost  per  yard 

ToUi  Coat  per  Yard: 

Reducmg                ^  for  increased  yardage  by  stretch  in  Bleaching  &  Finishing 

ProTiduiK               fi  for  Selling  Expenses 

Providing               %  for  Commission  and  Guarantee 

Providing               %  for  Profit 

Increases  Total  Coat  100/                          and  equals 

SeU  for                                   per  yard 

1 

Form  No.  36. 


PRICE  TO  SELL: 


YARN 


No Style - 


DATE  EXECUTED  -  190 


B 
R 

190 

inH 

ased  on...         Cotton    . .                                           purchased        ..     @                         per  poi 

Co«t  to  Manufacture  Yam :                                                      Per  pound 

Dveinff  Cotton :     Color                                                               Per  pound 

Twisting:                                             ply;                                      Per  pound 

(Average  Labor  Cost  increased  by  proportion  of  Department  Expenses) 

Windinjr:    On                                                                           Per  pound 

Yarn  Supplies :    Cost  of  Cones,  Tubes,  Packing  Materials  etc. 

Spooling:                                                                                          Per  pound 

(Average  Labor  Cost  increased  by  proportion  of  Departmenf  Expenses) 

Total  Cost 

Allowance                               ^  for  Waste  in  Winding  and  Twisting 

Providing                                ^  for  Selling  Expenses  freight,  etc. 

. 

Providing                                ^  for  Profit 

[    Increases  Total  Cost  100/                                                and  equals 

Sell  for                                                                                         per  pound 

212 


Form  No.  37. 

Number 


Range  Nt>.. 

FABltiC 


Selling  Weight ...Ounces       Date. 


.190 


Warp  Dreased                   Yds. 

Maktt-uD       of       Lets. 

Weijtht                              Lbs 

Rods 

ricks. 

Filline  Yarn.                      Ll«. 

Loom  Width                      Inches 

csurora 

WEIGHT 

ACTOAL 
WEIGHT 

ntiCB 
oeahes 

COST 

SUMMAKY 

Off  Loom, 

Material, 

Yards, 

Weight,                             Lbs. 

Width,                               Inch« 

Total  Charge  for  Material, 

Finished, 

Ywds, 

W.g«, 

Mixing  and  Oiling,                                Lbs.  @ 

Weight,                             Lbs. 

Carding  and  Spinning,                          Lte.  Q 

Width,                               Inchca 

Dyeing,                                                  Lbs.  O 

Twisting,                                                Lbs.  & 

Sell  8                           per  Yard 

Warp  Spooling                                      LU.  @ 

Warp  DrtMing  and  Drairing  in           Yds.  @ 

Wearing  and  Weaving  Expense          Yds.  @ 

Bnrliog  and  Sewing,                               Yds.  fl 

m-einsr  in  Piece.                                    Lbs.  ft 

FinishiDK.                                              Yds.  0 

Total    Charge 

for    Material    and    W«r«s. 

Adding 

%    for   all    Expenses. 

Cost  of  Prodi 

cing  and  Selling,  f                           per  Yard 

._. 

._ 



213 


PART    IV 
REPORT    FORMS 


REPORT    FORMS 

Report  Forms  Nos.  1  to  9,  inclusive 

These  forms  are  never  submitted  as  the  main  exhibits  of  a  report, 
but  are  supplementary  exhibits  added,  to  supply  statistics  used  in 
figuring  costs  and  the  selling  basis.     (See  percentage  costs.) 

Report  Form  No.  10.     (Page  236.) 

This  form  is  a  balance  sheet  to  be  submitted  as  part  of  the  report 
to  the  proprietors  of  the  business. 

Your  attention  is  directed  to  the  way  the  items  for  inventory  and 
furniture  and  fixtures  are  qualified;  to  the  method  of  summing  up 
the  current  liabilities ;  and  to  the  form  of  entering  the  changes  in  the 
capital  accounts  when  it  is  not  desirable  to  make  an  exhibit  showing 
the  partnership  accounts. 

The  balances  carried,  from  Exhibit  B  are  the  connecting  links 
between  the  balance  sheet  and  the  statement  of  profit  and  loss. 

Report  Form  No.  11.     (Page  238.) 

This  form  is  a  profit  and  loss  account  for  a  trading  business. 
The  object  is  to  show  the  net  profits  of  the  business  for  the  period 
and  the  distribution  of  the  profits  to  the  interested  parties. 

On  the  debit  side  of  the  account  is  charged  the  expenses,  the 
accounts  being  grouped  so  as  to  exhibit  in  detail  and  in  total  the 
expenses  of  the  business  in  the  manner  most  suited  to  the  require- 
ments of  the  business. 

Your  attention  is  directed  to  the  grouping  of  the  expenses  and 
the  detail.  Never  show  an  extended  analysis  unless  required ;  the 
tendency  to  go  to  extremes  in  analyzing  accounts  too  often  destroys 
the  value  of  the  report.  The  average  layman  cannot  comprehend  an 
elaborate  report  and  is  only  confused  with  a  mass  of  detail. 

The  gross  profit  in  trading  carried  from  Exhibit  C  is  the  con- 
15  217 


2i8  ACCOUNTING    PRACTICE 

necting  link  between  this  exhibit  and  the  trading  account;  the  dis- 
tributed profit  carried  to  the  partners'  accounts  in  the  balance  sheet 
is  the  connecting  link  between  this  exhibit  and  the  balance  sheet. 

This  method  of  closing  the  account  and  carrying  the  net  profit 
down  for  distribution  is  not  universally  adopted.  Some  accountants 
simply  show  the  distribution  of  the  net  profit  by  carrying  the  items 
short ;  viz. : 

Balance  being  net  profit  for  the  year  distributed  as  follows: 

Edward   S.  Johnson,  one  third $6  253.72 

David  J.  Hill,  two  thirds 12  507.43 


Total  for  the  year  1901   (extended)....  $18  761.15 

Report  Form  No.  12.     (Page  240.) 

This  form  is  a  trading  account  for  a  trading  business.  The  prime 
object  in  view  is  to  exhibit  the  basis  upon  which  the  goods  can  be 
priced. 

The  cost  of  sales  is  shown  as  a  charge  against  the  net  sales,  and 
the  result  is  the  gross  profit  on  trading. 

On  the  debit  side,  the  inventory  of  merchandise  for  the  beginning 
of  the  period  should  be  added  to  the  net  purchases  of  merchandise 
for  the  period,  and  from  the  sum  should  be  deducted  the  inventory 
for  the  end  of  the  period.  The  result  should  be  the  cost  of  the 
merchandise  sold. 

The  sales  are  entered  on  the  credit  side  of  the  account  for  the 
gross  amount,  and  the  returns  and  allowances  on  the  sales  are  de- 
ducted to  show  the  net  sales  for  the  period. 

The  balance  of  the  account  is  the  gross  profit,  and  the  percentage 
of  the  gross  profit  to  the  cost  of  sales  should  be  about  the  average 
per  cent,  added  to  the  purchase  price  of  the  merchandise  to  determine 
the  selling  price. 

Never  confuse  the  sales  and  purchases  by  including  sales  returns 
and  allowances  with  the  purchases,  or  by  including  the  returned  pur- 
chases with  the  sales. 

The  English  custom  of  entering  trading  charges  in  this  account 
is  not  regarded  favorably  in  America,  except  when  showing  the 
operations  of  several  departments  of  the  same  business;  in  this  case 


REPORT    FORMS  219 

the  expenses  of  each  department  are  entered  to  show  the  result  for 
the  department. 

Report  Form  No.  13.     (Page  242.) 

This  form  is  a  balance  sheet  to  be  submitted  as  part  of  the  report 
to  the  officers  or  directors  of  a  corporation. 

Your  attention  is  directed  to  the  method  of  setting  up  the  capital 
stock  so  as  to  show  the  amount  authorized  and  the  amount  issued. 

Note  also  the  means  of  showing  the  surplus  account.  If  dividends 
were  paid,  an  exhibit  should  be  made  for  the  surplus  account. 

The  net  profit  carried  from  the  manufacturing  and  trading  ac- 
count is  the  connecting  link  between  this  exhibit  and  Exhibit  B. 

Report  Form  No.  14.     (Page  244.) 

This  form  is  a  manufacturing  and  trading  account  to  be  prepared 
where  no  distinction  is  made  between  manufacturing  and  selling. 

The  form  is  sometimes  split  after  the  manufacturing  expenses 
and  the  balance  gross  profit  is  carried  to  a  profit  and  loss  state- 
ment, where  the  general  expenses  and  commission  and  guarantee  are 
set  up  against  the  gross  profit.     (See  Report  Form  No.   15.) 

Where  items,  foreign  to  the  business,  are  entered  in  the  profit 
and  loss  account,  a  statement  of  profit  and  loss  should  be  made  in 
addition  to  the  manufacturing  and  trading  account. 

Report  Form  No.  15.     (Page  246.) 

This  form  is  a  profit  and  loss  account  to  be  submitted  in  con- 
nection with  a  trading  account,  when  the  selling  division  of  the  busi- 
ness is  operated  independently. 

The  connecting  link  between  the  surplus  account,  or  balance  sheet, 
and  this  exhibit  is  the  net  profit. 

The  connecting  link  between  the  trading  account  and  this  exhibit 
is  the  gjoss  profit  carried  from  the  trading  account. 

Report  Form  No.  16.     (Page  248.) 

This  form  is  a  trading  account  to  be  submitted  in  connection  with 
a  manufacturing  account  and  a  profit  and  loss  account. 

The  method  of  setting  up  the  cost  of  production  as  part  of  the 


220  ACCOUNTING    PRACTICE 

purchase  price,  in  determining  the  cost  of  sales,  is  shown,  and  this 
item  is  the  connecting  Hnk  between  this  exhibit  and  the  manufactur- 
ing account. 

The  connecting  link  between  this  exhibit  and  the  profit  and  loss 
account  is  the  gross  profit  on  trading  which  is  carried  to  profit  and 
loss. 

Never  show  the  sales  of  waste  in  a  trading  account. 

Report  Form  No.  17.     (Page  250.) 

This  form  is  a  manufacturing  account  to  be  submitted  in  connec- 
tion with  a  trading  account. 

The  prime  feature  is  the  cost  of  the  production  which  is  the  con- 
necting link  between  the  manufacturing  account  and  the  trading 
account. 

The  sales  of  waste  are  an  offset  to  the  cost  of  material  consumed 
and  should  be  set  up  in  this  account,  but  not  deducted  from  the  cost 
of  material  consumed. 

Report  Form  No.  18.     (Page  252.) 

This  form  is  a  comparative  statement  of  profit  and  loss,  to  be 
submitted  in  connection  with  a  comparative  trading  account  and  a 
balance  sheet  for  a  business  operated  by  separate  departments. 

Report  Form  No.  19.     (Page  254.) 

This  form  is  a  comparative  trading  account  to  be  submitted  in 
connection  with  Report  Form  No.   18. 

Your  attention  is  particularly  directed  to  the  way  the  labor  is 
treated  in  the  carpet  department  and  in  the  furniture  department. 

Both  items  of  labor  appear  in  the  trading  account  as  set  up, 
because  they  are  elements  of  the  cost  of  sales. 

The  labor  of  the  furniture  department  is  included  in  the  inventory 
for  the  end  of  the  period,  because  the  finished  furniture  is  inventoried 
at  the  finished  value,  and  the  labor  charged  is  not  conditional  with 
the  sale,  whereas  the  cost  of  making  and  fitting  the  carpets  is  condi- 
tional with  the  sale  and,  in  character,  virtually  an  added  cost. 

The  connecting  link  between  this  report  and  the  profit  and  loss 
account,  Exhibit  B,  is  the  gross  profit. 


REPORT    FORMS  221 

Report  Form  No.  20.     (Page  256.) 

This  form  is  a  balance  sheet  which  is  submitted  as  part  of  the 
report  consisting  of  Forms  Nos.  20  to  2"^,  inclusive. 

The  reference  to  exhibits  is  made  to  illustrate  a  complete  report. 

Your  attention  is  particularly  directed  to  the  form  of  certifying 
the  main  exhibits  when  the  report  is  certified. 

The  connecting  link  between  this  exhibit  and  Exhibit  B  is  the 
net  profit  for  the  fiscal  year. 

Report  Form  No.  21.     (Page  258.) 

This  form  is  a  statement  of  profit  and  loss  for  a  fiscal  year  (year 
ending  some  date  other  than  the  calendar  year). 

Your  attention  is  directed  to  the  form  of  setting  up  bad  debts 
charged  off  and  recovered;  and  to  interest  and  discount  earnings  and 
expenses. 

The  connecting  link  between  this  exhibit  and  Exhibit  C  is  the 
gross  profit,  which  is  carried  from  the  trading  account. 

Report  Form  No.  22.     (Page  260.) 

This  form  is  a  trading  account  which  is  submitted  in  connection 
with  the  foregoing  Exhibits  A  and  B. 

The  features  to  be  considered  are  the  purchases  of  domestic  mer- 
chandise, the  purchases  of  foreign  merchandise  and  the  entry  for 
duties,  foreign  freight,  etc. 

Special  charges  for  expenses  incurred  in  connection  with  pur- 
chases, which  are  considered  as  part  of  the  purchase  price  and  in- 
cluded in  the  inventory,  should  be  set  up  with  the  purchases  before 
deducting  the  inventory  for  the  end  of  the  period. 

The  connecting  link  between  this  exhibit  and  Exhibit  B  is  the 
gross  profit  on  trading  which  is  carried  to  the  profit  and  loss  account. 

Report  Form  No.  23.     (Page  262.) 

This  form  is  a  schedule  of  the  bills  receivable  (notes  of  others 
held  by  the  company). 

Some  accountants  describe  such  exhibits  as  schedules  in  the  text 
of  the  report.     There  is  no  more  reason  for  characterizing  a  balance 


222  ACCOUNTING    PRACTICE 

sheet  or  statement  as  an  "  exhibit  "  than  there  is  for  characterizing 
a  schedule  as  an  "  exhibit." 

The  arrangement  of  the  items  is  not  imperative,  unless  the  report 
requires  full  detail. 

The  commonest  plan  of  arranging  bills  receivable  is  to  head  col- 
umns for  maker,  time,  due  date  and  amount,  and  simply  schedule  the 
items  using  only  one  line  for  each  item. 

This  exhibit  is  supplementary  to  the  balance  sheet.  The  con- 
necting link  between  this  exhibit  and  the  balance  sheet  is  the  total 
of  the  bills  receivable  which  appears  in  the  balance  sheet. 

Report  Form  No.  24.     (Page  263.) 

This  form  is  a  schedule  of  accounts  receivable  and  has  been 
favorably  considered ;  but  care  must  be  exercised  in  qualifying  the 
accounts  or  you  will  lay  yourself  open  to  criticism. 

When  a  report  is  made  at  a  later  date,  the  accounts  which  were 
settled  can  be  shown. 

A.  simple  schedule  of  the  ledger  folios,  names  and  amounts  is 
generally  sufficient.  For  other  forms  see  previous  remarks,  and 
Report  Form  No.  47. 

This  exhibit  is  supplementary  to  the  balance  sheet.  The  connect- 
ing link  between  this  exhibit  and  the  balance  sheet  is  the  total  of  the 
accounts  receivable  which  appears  in  the  balance  sheet. 

Report  Form  No.  25.     (Page  264.) 

This  form  is  a  schedule  of  the  policies  for  unexpired  insurance 
and  gives  the  details  of  each  policy. 

The  common  method  is  simply  to  list  the  policies  similar  to 
Report  Form  No.  47,  showing  only  the  number  of  the  policy,  the 
expiry  date,  the  premium,  and  the  unexpired  portion. 

The  connecting  link  between  this  exhibit  and  the  balance  sheet  is 
the  total  of  unexpired  insurance  which  appears  in  the  balance  sheet. 

Report  Form  No.  26.     (Page  265.) 

This  form  is  a  schedule  of  bills  payable  (company's  outstanding 
notes)  and  the  remarks  applying  to  Report  Form  No.  23  are  appro- 
priate to  this  exhibit. 


REPORT    FORMS 


223 


The  connecting  link  between  this  exhibit  and  the  balance  sheet 
is  the  total  of  the  bills  payable,  which  appears  in  the  balance  sheet. 

Report  Form  No.  27.     (Page  266.) 

This  form  is  a  schedule  of  accounts  payable. 

If  the  company  is  financially  embarrassed,  the  accounts  may  be 
set  up  to  show  the  urgency  of  each  claim  by  stating  the  due  date, 
terms,  etc. 

The  connecting  link  between  this  exhibit  and  the  balance  sheet  is 
the  total  accounts  payable,  which  appears  in  the  balance  sheet. 

Report  Form  No.  28.     (Page  268.) 

This  form  is  a  balance  sheet  to  be  submitted  as  a  part  of  the 
report  made  to  the  stockholders,  fiscal  agents,  or  prospective  pur- 
chasers of  an  interest  in  the  corporation. 

The  fixed  assets  and  fixed  liabilities  are  set  up  first  because  of 
their  relative  importance  to  the  clients. 

The  connecting  link  between  this  exhibit  and  Exhibit  II  is  the 
balance  of  the  surplus  account. 

Report  Form  No.  29.     (Page  270.) 

This  form  is  a  statement  of  the  surplus  account  and  is  submitted 
in  connection  with  the  balance  sheet  Exhibit  I,  because  it  is  not  con- 
sidered good  form  to  embody  statements  in  the  balance  sheet. 

Your  attention  is  directed  to  the  method  of  entering  dividends, 
plant  and  equipment  charged  off,  and  capital  stock  donated. 

The  connecting  link  between  this  exhibit  and  Exhibit  I  is  the 
surplus  for  the  end  of  the  period. 

The  connecting  link  between  this  exhibit  and  Exhibit  III  is  the 
net  profit  carried  from  Exhibit  III. 

The  connecting  link  between  this  exhibit  and  Exhibit  II  is  the 
surplus  at  the  beginning  of  the  period  and  the  surplus  at  the  end 
of  the  period. 

Report  Form  No.  30.     (Page  272.) 

This  form  is  a  statement  of  profit  and  loss  to  be  submitted  in 
connection  with  the  other  exhibits  of  this  report. 


224  ACCOUNTING   PRACTICE 

Your  attention  is  directed  to  the  entries  for  bad  accounts  and  the 
amount  recovered  on  bad  accounts.  It  is  particularly  directed  to 
the  method  of  closing  the  account,  carrying  the  balance  down,  and 
showing  items  which  are  not  necessarily  a  part  of  the  business. 

Interest  and  discount  are  financial  transactions,  and  there  are 
many  conditions  where  it  is  absolutely  necessary  to  show  the  items 
as  exhibited. 

When  depreciation  of  an  extraordinary  character  is  charged  off, 
such  charges  are  also  set  up  in  the  same  method  as  the  interest  and 
discount. 

The  connecting  link  between  this  exhibit  and  Exhibit  II  is  the 
net  profit,  which  is  carried  to  the  surplus  account. 

The  connecting  link  between  this  exhibit  and  Exhibit  IV  is  the 
gross  profit  carried  from  the  trading  account. 

Report  Form  No.  31.     (Page  274.) 

This  form  is  a  trading  account  to  be  submitted  in  connection  with 
the  other  exhibits  of  this  report.  The  remarks  relating  to  Report 
Form  No.  16  are  appropriate  to  this  exhibit. 

The  connecting  link  between  this  exhibit  and  Exhibit  III  is  the 
gross  profit  carried  to  the  profit  and  loss  account. 

The  connecting  link  between  this  exhibit  and  Exhibit  V  is  the 
net  cost  of  manufacturing  carried  from  the  manufacturing  account. 

Report  Form  No.  32.     (Page  276.) 

This  form  is  a  manufacturing  account  submitted  in  connection 
with  the  other  exhibits  of  this  report. 

Your  attention  is  directed  to  the  manner  of  setting  up  the  sales 
of  waste,  which  is  an  offset  to  the  cost  of  material  consumed. 

Report  Form  No.  33.     (Page  276.) 

This  form  is  a  comparative  balance  sheet  and  is  supplementary  to 
the  other  exhibits  of  this  report. 

The  connecting  links  between  this  exhibit  and  the  report  proper 
are  the  various  items  of  the  balance  sheet  for  the  end  of  the  period, 
which  is  Exhibit  I,  and  the  balances  of  surplus  for  the  beginning 
and  end  of  the  period  which  appear  in  Exhibit  II. 


REPORT    FORMS  225 

Reports  Forms  Nos.  34  to  40  inclusive 

These  forms  are  similar  to  the  previous  forms,  excepting  that  they 
are  a  little  more  complicated. 

The  period  covered  by  this  report  was  three  years. 

The  Report  Form  No.  35  is  different  from  the  others  because 
the  circumstances  called  for  separate  accounts. 

The  Report  Form  No.  36  is  also  different  for  the  same  reason. 
This  statement  shows  the  real  profits  and  the  Report  Form  No.  43 
shows  the  profits  as  appearing  on  the  books  of  the  company.  The 
claim  that  the  profits  for  1905  was  $22  194.33  and  for  1906  $15  025.81 
is  refuted  by  the  copy  of  the  profit  and  loss  account  for  1906,  which 
is  Exhibit  43. 

Setting  up  accounts  in  the  form  shown  in  this  report  will  exhibit 
the  true  sources  of  all  items  of  surplus  and  profit  and  loss. 

Report  Form  No.  40  illustrates  the  method  of  setting  up  a  com- 
parative balance  sheet  or  statement  of  assets  and  liabilities.  The  latter 
name  applies  to  this  form,  because  the  condensed  trial  balance  for 
the  date  of  the  audit  is  embodied  in  the  exhibit. 

Report  Form  No.  41.     (Page  302.) 

This  form  is  a  comparative  statement  of  profit  and  loss  for  three 
years,  and  illustrates  the  method  of  showing  the  various  items,  so 
that  a  comparison  can  be  made.  Your  attention  is  directed  to  the 
method  of  setting  up  the  credits  which  were  deducted  from  the  sales 
for  the  year. 

Report  Form  No.  42.     (Page  304.) 

This  form  is  a  condensed  trial  balance  for  the  date  the  audit  was 
made,  and  should  be  submitted,  if  the  audit  is  made  a  date  later  than 
the  closing  of  the  books,  for  the  purpose  of  determining  the  condi- 
tion of  the  business  for  a  client  who  is  a  possible  purchaser  of  an 
interest  in  the  business. 

Report  Form  No.  43.     (Page  306.) 

This  form  is  a  summary  of  the  profit  and  loss  account  as  it  appeared 
on  the  books  of  the  company,  and  is  submitted  to  illustrate  the  proper 


226  ACCOUNTING    PRACTICE 

method  of  reporting  the  results  as  shown  by  the  books  when  the  books 
are  inaccurate,  because  of  errors  of  omission  or  commission. 

Report  Form  No.  44.     (Page  308.) 

This  form  is  a  statement  of  the  account  of  the  company  con- 
trolled by  the  vender  of  the  company  examined. 

Report  Form  No.  45.     (Page  309.) 

This  form  is  a  comparative  statement  of  statistics  and  percentages 
of  interest  to  the  vendee  and  its  importance  is  evident. 

Report  Form  No.  46.     (Page  310.) 

This  form  is  a  condensed  trial  balance  and  illustrates  the  method 
of  establishing  the  equilibrium  of  the  trial  balance  by  adding  to  the 
general  accounts  the  totals  of  the  accounts  receivable  and  accounts 
payable. 

Report  Form  No.  47.     (Page  311.) 

This  form  is  a  schedule  of  bills  receivable  and  illustrates  the  meth- 
ods of  condensing  the  schedules  when  full  particulars  are  not  essential. 

Report  Form  No.  48.     (Page  312.) 

This  illustrates  the  form  used  when  certifying  a  balance  sheet 
separated  from  the  regular  report.  It  is  very  acceptable  to  bankers 
because  it  enables  them  to  see  at  a  glance  the  amount  of  the  current 
assets  and  liabilities  and  fixed  assets  and  liabilities.  This  balance 
sheet  is  compiled  from  Report  Form  No  28,  page  268. 

In  General 

Report  Results  not  on  Books. — The  statement  of  profit  and  loss 
embodied  in  the  report  of  an  audit  need  not  appear  in  that  form 
on  the  books  of  the  company  in  order  to  certify  that  the  results  are 
as  per  the  hooks.  It  is  essential  only  that  the  net  results  as  shown 
by  the  report  appear  on  the  books. 

If  the  net  results  shown  in  the  report  do  not  coincide  with  the 
books,  a  statement  should  be  added  to  your  report  to  show  wherein 
the  books  diflfer  from  your  report.     (See  Report  Form  43.) 


Percentages  of  the  Various  Elements  op  Cost  (simple). 


Percent- 
age of 

Manfg. 
Cost. 

Percent- 
age of 
Whole 
Cost. 

Percent- 
age of 
Sales. 

I. 

1 
Cost  of  Material, 

198  551   28 

57% 

53% 

45% 

2. 

Cost  of  Labor, 

107  611 .43 

31% 

29% 

24% 

3- 

Manufacturing  Expenses, 

10  693.77 

3% 

3% 

2% 

4- 

General  Expenses, 

30  766.55 

9% 

8% 

7% 

5- 

Manufacturing  Cost, 

347  623.03 

100% 

93% 

78% 

6. 

Selling  Expenses: 

Commission  and  Guarantee, 

28  941 .11 

7% 

6% 

7- 

Whole  Cost, 

376  564.14 

100% 

84% 

8. 

Profits  for  the  year  1 90 1 , 

69  471 -37 

16% 

9- 

Sales, 

446  035.51 

100% 

Report  Form  No.   i.     (For  report,  see  Report  Forms  Nos.  13  and  14.) 


227 


Percentages  of  the  Various  Elements  of  Cost  (Compound). 


Percent- 
age of 

Manfg. 
Cost. 

Percent- 
age of 

Whole 
Cost. 

Percent- 
age of 
Sales. 

Cost  of  Material, 

201  040.69 

62% 

56% 

47% 

Cost  of  Labor, 

loi  342.17 

31% 

28% 

24% 

Manufacturing  Expenses, 
Manufacturing  Cost, 

21  874.60 

7% 
100% 

6% 

90% 

5% 

324  257.46 

76% 

Inventory    of    Merchandise, 

Dec.  31,  1900, 

117  394.11 

Purchases     of     Merchandise 

during  year, 
Total, 

140  291.87 

581   943-44 

Deduct:   Inventory  of  Mer- 

chandise, Dec.  31,  1 90 1 , 

94  762.18 

Cost  of  Sales, 

487    181.26 

90% 

76% 

Selling  Expenses, 
Whole  Cost, 

54  892.13 

10% 
100% 

9% 

542  073.39 

85% 

• 

Profits  for  the  year  1901, 

93   874.60 

15% 

Sales  for  the  year  1901, 

635   947-99 

■ 

100% 

Re^port  Form  No.  2.      (See  also  Report  Forms  Nos.  6  and  15,  16  and  17.) 


228 


Condensed  Statement  of  Profit  and  Loss  for  the  Year  1901. 


Inventory  of  Merchandise,  December  31,  1900, 

Purchases  of  Merchandise  made  during  the  year, 
(Less :  Purchase  Credits  for  Returns  and  Allowances.) 

Total, 

Less :  Inventory  of  Merchandise  December  31,  1 90 1 , 

17  691.40 
100  471 .  18 

118  162.58 
19   III. 44 

Cost  of  Sales, 
General  Expenses, 
Selling  Expenses, 

Whole  Cost, 

Profits  for  the  year  1 90 1 , 

99  051    14 
II  47769 
25  311-87 

135  840.70 
18  761.15 

Sales  for  1901  (Less  Returns  and  Allowances), 

154  601.85 

Report  Form  No.  3.     (For  report,  see  Report  Forms  Nos.  10,  11  and  12.) 


229 


Condensed  Statement  of  Profit  and  Loss  for  the  Year  1901. 


Inventory  of  Material,  December  31,  1900, 

Purchases  of  Material  made  during  1901 
(Less:    Purchase    Credits   for  Returns  and  Al- 
lowances), 

Total, 

Less:  Inventory  of  Material,  December  31,  1901, 

50   701,80 
178  611.85 

229  313.65 
30  762.37 

Cost  of  Material, 

Labor, 

Manufacturing  Expenses, 

General  Expenses, 

198  551 . 28 

107  611  .43 

10  693.77 

30  766.55 

Cost  of  Manufacturing, 

Selling  Expenses,  Commission  and  Guarantee, 

347   623.03 
28  941 . II 

Whole  Cost, 

Profits  for  the  year  1 90 1 , 

376  564.14 
69  471-37 

Sales  (Less  Returns  and  Allowances), 

446  035.51 

Report  Form  No.  4.    (For  report  on  above,  see  Report  Forms  Nos.  13  and  14.) 


230 


Condensed  Statement  of  Profit  and  Loss  for  the  Year  1901. 


Inventory  of  Merchandise  and  Material,  Decem- 

141  309.72 

ber  31,  1900, 

Purchases  of  Merchandise  during  the  year  1901 

(Less :  Purchase  Credits  for  Returns  and  Allow- 

ances) , 

201    755-31 

Purchases  of  Material  during  the  year  1901 

(Less :  Purchase  Credits  for  Returns  and  Allow- 

ances), 
Totals, 

194  609.77 

537   674.80 

Less:  Inventory  of  Merchandise  and  Material, 

December  31,  1 90 1 , 

123  461.12 

Cost  of  Merchandise  and  Material, 

414   213.68 

Labor, 

191   604.11 

Factory  Expenses, 

37   692.15 

General  Expenses, 

24  608.21 

Selling  Expenses, 

57   223.44 

Whole  Cost, 

725  341.59 

Profits  for  the  Year  1901, 

84  367.22 

Sales   for  the  year    (Less   Returns   and   Allow- 

ances), 

809  708.81 

Report  Form  No.  5. 


231 


Condensed  Statement  of  Profit  and  Loss  for  the  Year  1901. 


Inventory  of  Material,  December  31,  1900, 

Purchases  of  Material  made  during  the  year  1 90 1 , 
(Less :  Purchase  Credits  for  Returns  and  Allow- 
ances) , 

Total, 

Less:  Inventory  of  Material,  December  31,  1901, 

Material  Consumption, 

Deduct  Offset :  Sales  of  Waste, 


Cost  of  Material, 

Labor, 

Manufacturing  Expenses, 

Manufacturing  Cost  of  Production, 

Inventory  of  Merchandise,  December  31,  1900, 

Purchases  of  Merchandise  made  during  1901 
(Less:  Purchase  Credits  for  Returns  and  Allow- 
ances) , 

Total, 

Less:  Inventory  of  Merchandise,  December  31, 
1 90 1, 


Cost  of  Sales, 

Selling  Expenses, 

Whole  Cost, 

Profits  for  the  Year  1901, 


Sales,  (Less:  Returns  and  Allowances), 


47   211 


201    777.84 


248  989.66 
39  477-86 


209  511.80 
8  471    II 


201   040.69 

loi   342.17 

21   874.60 


324  257.46 
117  394.11 

140  291 .87 


581  943-44 
94  762.18 


487 

181 

26 

54 

892 

13 

542 

073 

39 

93 

874 

60 

635  947-99 


Report  Form  No.  6.     (For  report  on  above,  see  Report  Forms  Nos.  15,  16 
and  17.) 


232 


Condensed  Statement  op  Profit  and  Loss  for  the  Year  1901. 


Inventory  of  Furniture,  December  31,  1900, 

Purchases   of    Finished    Furniture    during    the 
Year  1901, 

Purchases  of  Unfinished  Parts  during  the  Year 
1 90 1, 

Labor:  Setting  Up  and  Finishing  Furniture 

Total, 

Less :  Inventory  of  Furniture,  December  31,  1 90 1 , 

121   809.15 

198  761.13 

177  693.55 
10  763.88 

509  027.71 
104  786.22 

Cost  of  Sales, 

Salary  and  Wages, 

Expenses, 

Whole  Cost, 

Profits  for  the  Year  1 90 1 , 

404  241.49 
39  72347 
49  767.33 

493   732   29 
49  767.34 

Sales,  (Less:  Returns  and  Allowances), 

543  499-63 

Report  Form  No.  7.     (For  report  on  above,  see  Report  Forms  Nos.  18  and  19.) 


16 


233 


Condensed  Statement  of  Profit  and  Loss  for  the  Year  1901. 


Inventory  of  Carpets,  December  31,  1900, 

Purchases  of  Carpets  during  the  Year  1 90 1  (Less : 
Purchase  Credits  for  Returns  and  Allowances), 

Total, 

Less:  Inventory  of  Carpets,  December  31,  1901, 

117  322.44 
310  267.78 

427   590.22 
108  427-39 

Cost  of  Carpets, 

Labor:  (Cutting,  Fitting  and  Laying  Carpets), 

Salary  and  Wages, 

Expenses, 

Whole  Cost, 

Profits  for  the  Year  1901, 

319   162.83 

9  431    29 
34  311-28 
49   777-65 

412   683.05 
58   744-22 

Sales  for  the  Year  1901,  (Less:  Returns  and  Al- 
lowances), 

471    427.27 

Report  Form  No.  8.     (For  report  on  above,  see  Report  Forms  Nos.  18  and  19.) 


'34 


Condensed  Statement  of  Profit  and  Loss  for  the  Fiscal  Year  Ending 

October  31,   1902. 


Inventory  of  Merchandise,  October  31,  1901, 

Purchases  of  Foreign  Merchandise  (Less :  Credits 
for  Returns  and  Allowances), 

Duty,  Foreign  Freight,  etc.. 

Purchases    of     Domestic     Merchandise     (Less: 
Credits  for  Returns  and  Allowances), 

Total, 

Deduct:  Inventory  of  Merchandise,  October  31, 
1902, 

127  604.11 

304  1 1 1. 82 
176  801.15 

217  444.26 

825  961.34 
118  43273 

Cost  of  Sales, 

Selling  Expenses, 

General  Expenses,  (Includes  Interest  and  Bad 
Debts), 

Whole  Cost, 

Net  Profits  for  the  fiscal  year  ending  October 
31.  1902, 

707   528.61 
54  608.15 

1       67  846.18 

829  982.94 
25  376.76 

Sales,  (Less:  Returns  and  Allowances), 

855  359-70 

Report  Form  No.  9.     (For  report  on  above,  see  Report  Forms  Nos.  20  to  22.) 


235 


Balance  Sheet, 


Messrs.   JOHNSON 


Assets  : 

Cash  on  hand  December  31,  1901 : 
First  National  Bank, 
Petty  Cash, 
Total, 

31  827.54 
500.00 

32  327-54 

1 

Bills  Receivable  as  per  Exhibit  D, 

! 
1 100,00 

Accounts  Receivable  as  per  Exhibit  E, 
Sundry  Sales  Accounts, 
Edward  Davis, 
Total. 

41  397.60 
I  000.00 

42  397.60 

Inventory  of  Merchandise: 
(No  responsibility  assumed  for  quanti- 
ties and  prices.) 

19  III. 44 

Unexpired  Insurance  as  per  Exhibit  F, 

1 047.30 

Furniture  and  Fixtures  (As  per  books) , 

9  722.38 

Total  Assets, 

105  706.26 

Report  Form  No.  10. 


236 


AND     HILL. 


Exhibit  A. 


December  31,   1901. 


Liabilities  : 

Bills  Payable  as  per  Exhibit  G : 
Bank  Accommodations, 
Sundry  Creditors, 
Total, 

Accounts  Payable  as  per  Exhibit  H, 

25  ccc.oo 
10  coo.oo 

35  000.00 
7  321.15 

Total  Current  Liabilities, 

E.  S.  Johnson  Capital  Account: 
Balance,  December  31,  1900, 
Profits  for  year.  Exhibit  B, 
Total, 

Less  Personal  Drawings, 
Balance,  December  31,  1901, 

David  S.  Hill  Capital  Account : 
Balance,  December  31,  1900, 
Profits  for  year.  Exhibit  B, 
Balance,  December  31,  1901, 

9  534-13 
6  253.72 

IS  787-85 

2  005.70 

42  321.15 

37  095.53 
12  507-43 

13  782.15 

49  602.96 

Total, 

105  706.26 

237 


Messrs.  JOHNSON 


Profit  and  Loss  Account  for  th] 


Debits: 

General  Expenses: 

Office  Salary  and  Wages, 

Office  and  General  Expense, 

Rent, 

Telephone  and  Telegrams, 

Legal  Expense, 

Total, 

Selling  Expenses: 

Salesmen's  Salaries, 
Salesmen's  Expenses, 
Advertising, 
Gratis  Account, 
Commission, 
Total, 

Balance  being  Net  Profits  carried  down, 

5  471.62 

2   113.87 

2  000,00 

947.60 

944.60 

8  722.15 

10  233.54 

3  944." 

321.54 

2  090.53 

II   477-69 

25  311-87 
18  761.15 

Total, 

55   550-71 

Division  of  Profits: 

E.  S.  Johnson,  one  third, 
David  S.  Hill,  two  thirds. 

6  253.72 
12   507-43 

Total. 

18  761.15 

Report  Form  No.  11. 


238 


AND    HILL. 


Exhibit  B. 


YEAR    ENDING    DECEMBER    31,     I9OI. 


Credits: 

Gross  Profits  on  Trading  carried  from 

the  Trading  Account,  Exhibit  C, 

55  550.71 

'■^.^ 

Total, 

55  550-71 

Balance  carried  from  above, 

18  761.15 

Total, 

18  761. IS 

239 


Messrs.    JOHNSON 


Trading  Account  for  the 


Debits: 

Inventory  of  Merchandise,  December  31,  1900. 
(No   responsibility  assumed    for  quantities  and 
prices.) 

Purchases  of  Merchandise. 

(Less  Purchase  Credits  for  Returns  and  Allow- 
ances.) 

Total, 

Deduct:    Inventory  of   Merchandise,    December 
31,  1 90 1.     (No  responsibility  assumed 
for  quantities  and  prices.) 

17  691 
100  471 

40 
18 

118  162 

19  III 

1 

•58 
•44 

Cost  of  Sales, 

Balance,  being  Gross  Profits  on  Trading  carried 
to  Profit  and  Loss  Account,  Exhibit  B, 

99  051 
55  550 

.14 
•71 

Total, 

154  601 

.85 

Report  Form  No.  12. 


240 


AND  HILL. 


Exhibit  C. 


Year  Ending  December  31,   1901 


Credits: 

Sales  of  Merchandise, 

Less :  Sales  Credits  for  Returns  and  Allowances, 

157  833.72 
3   231.87 

Net  Sales  for  the  year  1901, 

154  601.85 

\ 

Total. 

154  601.85 

241 


THE   WILLIAMS 


Balance  Sheet, 


Assets: 

Cash  on  hand,  December  31,  1901, 
Petty  Cash  Fund, 
First  National  Bank, 
Total, 


Inventory  of  Material, 

(Not    responsible   for   quantities    and 

prices.) 

Parts  and  Findings, 

Sole  Leather, 

Goat  Skins, 

Sundries, 

Total, 


Bills  Receivable  as  per  Exhibit  C, 
Accounts  Receivable  as  per  Exhibit  D, 
Unexpired  Insurance  as  per  Exhibit  E, 


Total  Assets. 


300.00 
29  654.18 


14  983.11 
9  37784 
3  225.00 
3  176.42 


29  954.18 


30  762.37 

10  000.00 

115  49782 

371-50 


186  585.87 


Report  Form  No.  13. 


343 


SHOE   COMPANY 


Exhibit  A. 


December  31,  1901. 


Liabilities: 

Bills  Payable  as  per  Exhibit  F, 

10  000.00 

Accounts  Payable  as  per  Exhibit  G, 

27  601.18 

Total  Current  Liabilities, 

37  601.18 

Capital  Stock: 

Authorized  (1000  Shares  @  $100 

par  value), 
Unissued, 
Issued,  December  31,  1901, 

100  000.00 
30  500.00 

69  500.00 

Surplus  Account: 

Balance,  December  31,  1900, 
Profit  for  1 90 1  as  per  Exhibit  B, 
Balance,  December  31,  1901, 

10  013.32 
69  471-37 

79  484.69 

Total. 

186  58587 

243 


THE   WILLIAMS 


Manufacturing  and  Trading  Account 


Debits: 

Inventory  of  Material,  December  31, 
1900.      (No  responsibility  assumed  for 
quantities  and  prices.) 

50  701.80 

Purchases    of    Material    made    during 
1 90 1.     (Less:  Credits  for  Returns  and 
Allowances.) 

Total, 

178  611.85 

229  313.65 

Deduct :  Inventory  of  Material,  Decem- 
ber 31,  1 90 1.      (No  responsi- 
bility assumed  for  quantities 
and  prices). 

30  762.37 

Cost  of  Material, 

198  551.28 

Labor, 

107  611.43 

Manufacturing  Expenses: 
Rent, 

Heat,  Light  and  Power, 
Supervision, 
Sundry  Expenses, 
Total, 

2  500.00 
520.00 

3  900.05 
3  77372 

10  693.77 

General  Expenses: 
Office  Salaries, 
Office  Expenses, 
General  Expenses, 
Freight  and  Cartage, 
Total, 

16  229.62 
7  947-6o 
4  271.83 
2  317-50 

30  766.55 

Commission  and  Guarantee, 

28  941. II 

Net  Profits  for  the  year  carried  to 
Exhibit  A, 

69  471-37 

Total, 

446  035.51 

Report  Form  No.   14. 


244 


SHOE   COMPANY. 


Exhibit  B. 


FOR  THE  Year  Ending  December  31,   1901. 


Credits: 

Sales  for  the  year  1901. 

Less:  Returns  and  Allowances, 

457  433-33 
II  397.82 

Net  Sales  for  the  year  1 90 1 , 

446  035.51 

\ 

Total. 

446  035.51 

245 


THE    ELLISON 


Profit  and  Loss  Account  for  the 


Debits: 

Selling  Expenses: 

Salesmen's  Salaries, 
Salesmen's  Expenses, 
Rent  of  Salesroom, 
Commission, 
Delivery  Service, 
Heat,  Light  and  Power, 
Total, 

Administration  Expenses, 

Balance,  being  Net  Profits, 

IS   114. 11 
19  837.72 

2  001.34 

3  925-29 
2   972.87 
I   005.76 

44   857.09 
10   035.04 
93   874.60 

Total, 

» 

148    766.73 

Report  Form  No.  15. 


246 


MANUFACTURING   COMPANY 


Exhibit  6. 


Year  Ending  December  31,   1901. 


Credits: 

Gross  Profits  carried  from  Trading  Account, 
Exhibit  C, 

148  766.73 

>< 

Total, 

148  766.73 

247 


THE    ELLISON 


Trading  Account  for  the 


Debits: 

Inventory  of  Merchandise,  December  31,   1900. 

(No   responsibility  assumed  for  quantities   and 

prices.) 

117  394. 

II 

Cost  of  Production  for  the  year,  as  per  Manufac- 

turing Account,  Exhibit  D, 

324  257 

46 

Purchases  of  Merchandise. 

(Less :  Credits  for  Returns  and  Allowances.) 
Total, 

140  291 

87 

581   943 

44 

Deduct :  Inventory  of  Merchandise,  December  3 1 , 

1 90 1.     (No  responsibility   assumed    for 

quantities  and  prices.) 

94   762 

18 

Cost  of  Sales, 

487    181 

.26 

Balance  being  Gross  Profit  on  Trading  carried  to 

Exhibit  B, 

148   766 

•73 

Total, 

635   947 

•99 

Report  Form  No.   16. 


248 


MANUFACTURING   COMPANY. 


Exhibit  C. 


Year  Ending  December  31,   1901. 


Credits: 

Sales, 

Deduct :  Credits  for  Returns  and  Allowances, 

638  135.15 
2   187.16 

Net  Sales  for  the  year  1901, 

635  947-99 

"■■'-^.,,, 

Total, 

635   947-99 

17 


249 


THE   ELLISON 


Manufacturing  Account  for  the 


Debits: 

Inventory  of  Material,  December  31,  1900, 

(No    responsibility  assumed  for  quantities  and 

prices.) 

47   211.82 

Purchases  of  Material. 

(Less:  Credits  for  Returns  and  Allowances.) 
Total, 

201   777.84 

248  989.66 

Deduct:    Inventory  of  Material,   December  31, 

1 90 1.      (No  responsibility  assumed  for 

quantities  and  prices.) 

39  477-86 

Consumption  of  Material, 

209  511 .80 

Labor, 

loi   342.17 

Manufacturing  Expenses: 

Supervision,                                          $3  974.16 

Heat,  Light  and  Power,                        i    1 70 .  24 

Sundry  Expenses,                                  8  922.37 

' 

Depreciation,                                         7  807.83 

Total, 

21   874.60 

Total, 

332   728.57 

Report  Form  No.  17. 


250' 


MANUFACTURING   COMPANY. 


Exhibit  D. 


Year  Ending  December  31,  1901 


Credits: 

Sales  of  Waste. 

Balance  being   Manufacturing   Cost   carried   to 
Trading  Account,  Exhibit  C, 


Total, 


8  471. II 
324  257.46 


33^  728.57 


351 


THE   HOME   FURNITURE 


Profit  and  Loss  Account  for  the 


Debits: 

Furniture. 

1         s 

Carpets. 

Total. 

Salary  and  Wages: 

General  Office  Salaries 
(Prorated  on  a  basis  of 
Gross  Sales), 
Department  Salary  and 
Wages. 

lo  893.74 
28  829.73 

9  470.80 
24  840.48 

20  364.54 
53  670.21 

Expenses : 

General  Expenses  (Pro- 
rated   on    a    basis    of 
Gross  Sales), 

16  340.61 

14  206.20 

30  546.81 

Sundry      Department 

Expenses, 

Rent  (Based   on  floor 

space). 

Insurance, 

Warehouse  Expense, 

12  906.95 

II    200.00 
3  922.16 

5  397-61 

15  330.21 

10  75500 
4  763-71 
4  722.53 

28  237.16 

21   955.00 

8  685.87 

10  120.14 

Net  Profits  on  Furniture, 

49  767-34 

Net  Profits  on  Carpets, 

58  744-22 

Total  Net  Profits,  carried 
to  Exhibit  A, 

108  511.56 

Totals, 

139  258.14 

142  833.15 

282  091.29 

Report  Form  No.  18. 


252 


AND  CARPET  COMPANY. 


Exhibit  B. 


Year  Ending  December  31,  1901. 


Credits: 

Gross    Profits  on  Trading, 
carried  from  Exhibit  C : 

Furniture, 

Carpets, 

Total, 

Furnitvire. 

Carpets. 

Total. 

139   25814 

142  833.15 

282  091.29 

\ 

Totals, 

139  258.14 

142  833.15 

282  091.29 

25a 


THE   HOME   FURNITURE 


Trading  Account  for  the 


Debits: 

Inventory,  December  31,  1900. 
(No  responsibility  assumed  for 
quantities  and  prices.) 

Furniture 

Carpets 

Total 

121   809.15 

117  322.44 

239   131-59 

Purchases  for  the  year  1 90 1 . 
(Less :  Returns  and  Allowances :) 

Furniture, 

Parts  of  Furniture, 

Carpets, 

Total, 

198  761.13 
177   693-55 

310  267.78 

686  722.46 

Labor:   Setting  up   Furniture, 
Totals, 

10  763.88 

10  763.88 

509  027.71 

427   590.22 

936  617.93 

Deduct:    Inventory,  December 
31,    1 90 1.       (No    re- 
sponsibility assumed 
for     quantities     and 
prices.) 

104  786.22 

108  427-39 

213  213.61 

Cost  of  Furniture, 

404  241.49 

Cost  of  Carpets, 

319   162.83 

Cost  of  Furniture  and  Carpets, 

723  404.32 

Labor:  Fitting  Carpets, 

9  43129 

9  431-29 

Balance,   being    Gross    Profits 
carried  to  Exhibit  B, 

139  258.14 

142  833.15 

282  091.29 

Totals, 

543  49963 

471   427.27 

I  014  926.90 

Report  Form  No.  19. 


254 


AND  CARPET   COMPANY. 


Exhibit  C. 


Year  Ending  December  31,  1901. 


Credits: 

Sales  for  the  year  1 90 1 , 

Deduct:   Returns  and  Al- 
lowances, 

Furniture 

Carpets 

Toul 

544  687.17 
I    187-54 

473  540.72 
2   113-45 

I  018  227.89 
3  300.99 

Net  Sales  for  the  year: 
Furniture, 
Carpets, 
Total. 

543  499.63 

471  427-27 

I  014  926.90 

\ 

1 

543  49963 

471  427.27 

I  014  926.90 

255 


Balance  Sheet, 


Messrs.    MARSHALL 


Assets: 

Cash  on  hand,  October  31,  1902: 
Petty  Cash  Bank, 
Franklin  National  Bank, 
Total, 

Bills  Receivable  as  per  Exhibit  D, 

Accounts  Receivable: 

Sales  Ledger  Balances,  Exhibit  E, 
A.  W.  KUne, 
R.  J.  Jones, 
Total, 

Inventory,  October  31,  1902, 

(Not    responsible   for   quantities  and 

prices) : 

Merchandise, 

Supplies, 

Total, 

Unexpired  Insurance,  as  per  Exhibit  F, 
Furniture  and  Fixtures  (as  per  books) , 


Total. 


400.00 
30  769.18 


32  259.08 

500.00 

I  100.40 


"8  432.73 
I  104.14 


31  169.18 
636.49 


33  859-48 


119  536.87 

I  712.80 

II  809.25 


198  724.07 


Report  Form  No.  20. 


356 


AND  COMPANY. 


Exhibit  A 


AS  AT  October  31,   1902. 


Liabilities: 

Bills  Payable  as  per  Exhibit  G, 
Accounts  Payable  as  per  Exhibit  H, 

40  000.00 
II  367.64 

Total  Current  Liabilities, 

Capital  Stock, 

Surplus  Account : 

Balance,  October  31,  1 90 1 , 
Profits  as  per  Exhibit  B, 
Balance,  October  31,  1902, 

21  97967 
25  376.76 

SI  367-64 
100  000.00 

47  356.43 

\ 

\ 

Total, 

Part  of  report  made  December  5,  1902, 

Certified  Public  Accountant. 

198  724.07 

257 


Messrs.    MARSHALL 


Profit  and  Loss  Account  for  the  Fiscal 


Debits  : 

General  Expenses: 

Salary  and  Wages, 

Office  Expense, 

Rent, 

Heat  and  Light, 

Insurance  and  Taxes, 

General  Expenses, 

Total, 

Selling  Expenses: 

Salesmen's  Salaries, 

Salesmen's  Expenses, 

Advertising, 

Commission  and  Brokerage, 

Premiums, 

Gratis  Account,     ( 

Total, 

Bad  Debts,  as  per  Exhibit  (omitted), 

Interest  and  Discount  Expense: 

Interest  on  Notes  and  Accounts, 

Discount  on  Sales, 

Total, 

Balance  being  Net  Profits  for  the  fis- 
cal year  carried  to  Exhibit  A, 


Total, 


29  47361 
13  287.93 
15  000.00 

1  184.22 

2  118.69 
9  307.18 


20  777.84 

15  93767 

5  1 1 1-44 

3  972.15 

574.82 

8  234.23 


3  18715 

4  987.16 


70  371.63 


54  608.15 
2  114.80 


8  174.3^ 


25  376.76 


160  6,5.65 


Report  Form  No.  21. 


258 


A.VD   COMPANY. 


Exhibit  B. 


Year  Ending  October  31,   1902. 


Credits: 

Gross  Profits  on  Trading  carried  from 
Trading  Account  Exhibit  C, 

Recovered  on  Bad  Accounts, 

Interest  and  Discount  Earnings: 

Interest  on  Notes  and  Accounts, 
Discount  on  Purchases, 
Total. 

I  147.60 
10  765.81 

147  83109 
901.15 

1 

1 

II  913.41 

. 

Total, 

Part  of  report  made  December  5,  1902, 

Certified  Public  Accountant. 

160  645.65 

^59 


Messrs.    MARSHALL 


Trading  Account  for  the  Fiscal 


Debits: 

Inventory  of  Merchandise,  October  31,  1901. 
(No   responsibility  assumed    for    quantities    and 
prices.) 

Purchases  of  Domestic  Merchandise. 
(Less:  Credits  for  Returns  and  Allowances.) 

Purchases  of  Foreign  Merchandise. 

(Less:  Credits  for  Returns  and  Allowances.) 

Duty  and  Foreign  Freight, 
Total, 

Deduct:  Inventory  of  Merchandise,  October  31, 
1902.      (No  responsibility  assumed  for 
quantities  and  prices.) 

127  404 

217  644 

304  III 
176  801 

II 

• 

26 

82 
15 

825  961 
118  432 

34 
73 

Cost  of  Sales, 

Balance  being  Gross  Profits  on  Trading  carried 
to  Profit  and  Loss,  Exhibit  B, 

707   528 
147  831 

61 
09 

Total. 

855  359 

.70 

Report  Form  No.  22. 


260 


AND   COMPANY. 


Exhibit  C. 


Year  Ending  October  31,  1902. 


Credits: 

Sales, 

Deduct:  Returns  and  Allowances, 

857  471    10 
3   in. 40 

Net  Sales  for  the  fiscal  year, 

855  359-70 

N. 

Total. 

Part  of  report  made  December  5,  1902, 

Certified  Public  Accountant. 

855  359-70 

261 


Messrs.  MARSHALL  and  COMPANY. 


Exhibit  D. 


Schedule  of  Bills  Receivable,  October  31,  1902. 


Everett  &  Kuntz  (makers) : 

60  day  note  due  November  5,  1907. 
Indorsed  by  R.  W.  Everett  and  A.  W.  Kuntz, 
payable  at  the  Elmore  National  Bank,  with  in- 
terest at  6%, 

Underbill  &  Hoag  (makers) : 

90  day  note  due  November  14,  1907. 
Indorsed  by  Amsink  &  Co.  and  G.  J.  Underbill, 
payable  at  the  First  National  Bank  of  Utica, 
N.  Y.,  with  interest  at  6%, 

Edward  H.  Hammond  &  Son  (makers): 

Six  months  note  due  November  11,  1907. 
No  indorsers,  payable  at  the  Oneida  National 
Bank  of  Utica,  N.  Y.     Interest  added  to  face  of 
note, 


Total  Bills  Receivable, 


150.00 


286.49 


636.49 


Report  Form  No.  23. 


363 


Messrs.  MARSHALL  and  COMPANY. 


Exhibit  E. 


Schedule  op  Accounts  Receivable  October  31,  1902. 


Ledger 
FoHo 

Namb 

Good 

Questionable 

Bad 

14 
17 
19 
20 
22 

24 
26 
28 
37 
49 
58 
104 

143 
169 

184 

195 
199 
205 

Rathburn  &  Back, 
Armour  &  Co., 
Davis  &  Co., 
Walker  &  Co., 
Davis  &  Wilson. 
H.  M.  Pinch  &  Sons. 
A.  Wilbur  &  Co., 
Washburn  Plumbing  Co., 
J.  W.  Gates  &  Co., 
Doolittle  &  Daws, 
Gem  Iron  Co., 
Marvel  Iron  Works, 
A.  W.  Butler  &  Co., 
Wilson  Iron  Works. 
Marcy  Store  Co.. 
Edwards  Supply  Co., 
Halsey  &  Howe, 
Amity  Iron  Co., 

Total  Bad  Accounts, 
Total  Questionable  Ac- 
counts, 
Total  Good  Accounts, 

194.15 
310.50 

10  761 . 22 
I   891.50 

3  471-50 

1  171.60 

4  722.16 

2  316.80 
2   765.00 
2  97403 

47.60 
117.65 

184.05 
94.05 

40.00 

90. 10 

7.17 

I    100.00 

30  578.46 

443-35 

I    237.27 

443-35 
30   578.46 

Total  Accounts  Receiv- 
able, 

32   259.08 

Report  Form  No.  24. 


263 


Messrs.   MARSHALL  and  COMPANY. 


Exhibit  F. 


Schedule  of  Insurance  Policies,  Showing  Unexpired  Insurance, 
October  31,   1902. 


Insurance  on  Stock: 

Policy  No.   4716835,  Queen  Insurance 

Co.,  for  $7  000.00 

Expiring    January    5,     1905;    Term    3 
years;  Premium,  216.00 

Unexpired  term,  2  years,  2  mos.,  and  5  days; 
Unexpired  Premium, 

Policy  No.  3946912,  Amaranth  Insur- 
ance Co.,  for  $40  000.00 
Expiring    January    5,     1907;    Term    5 
years;  Premium,  i   800,00 
Unexpired  term,  4  years,  2  mos.,  and  5  days; 
Unexpired  Premium, 

Insurance  on  Plate  Glass: 

Policy    No.     1 392 1 7  5,    Wheeling    Plate 

Glass  Insurance  Co.,  for  $2  000.00 

Expiring  December  31,   1902;  Term,   i 
year;  Premium,  36.00 

Unexpired  term,  2  mos. ;  Unexpired  Premium, 

Insurance  on  Furniture  and  Fixtures: 

Policy  No.   4962871,  Lancaster  Insur- 
ance Co.,  for  $10  000.00 
Expiring  June  30.  1903;  Term  i  year; 
Premium,  37 -20 
Unexpired  term,  8  mos.,  Unexpired  Premium, 


157.00 


I    525.00 


6.00 


24.80 


Report  Form  No.  25. 


264 


Messrs.  MARSHALL  and  COMPANY. 


Exhibit  G. 


Schedule  op  Bills  Payable  October  31,  190a. 


First  National  Bank,  Accommodation  30  day  note, 
Due  November  25,  1902,  at  First  National  Bank, 

First  National  Bank,  Accommodation  90  day  note, 
Due  December  i,  1902,  at  First  National  Bank, 

American  Loan  &  Trust  Co.,  6  mos.  note, 

Due  January  i,  1903,  at  American  National  Bank, 


Total  Bills  Payable, 


10  000.00 


20  000.00 


10  000.00 


40  000.00 


Report  Form  No.  26. 


18 


Messrs.  MARSHALL  and  COMPANY. 


Exhibit  H. 


Schedule  of  Accounts  Payable  October  31,  1902. 


Ledger 
Folio. 

17 

R.  V.  Davis  &  Co., 

20 

A.  W.  Bums  &  Son, 

21 

G.  E.  Armstrong  &  Bro., 

23 

Newmarket  Co., 

29 

Newhall  Ship  Chandlery  Co. 

39 

Newton  Machine  Co., 

170 

Quaker  City  Iron  Co., 

195 

Remington  &  Sherman  Co., 

204 

Rhoades  &  Maloney, 

Total  Accounts  Payable  October  31,  1902. 


I 

470 

60 

5 

609.87 

94 

•75 

I 

704 

•87 

422 

•71 

I 

875 

.60 

10 

.00 

47 

•50 

131 

•74 

11 

367 

64 

Report  Form  No.  27. 


266 


Exhibit  I. 


THE   WILLIAMS  &    HENDERSON   WOODENWARE   COMPANY, 

PHILADELPHIA.   PENNSYLVANIA, 
Balance  Sheet,   December  31,   1901. 


Note: — The  above  illustrates  the 
method  of  marking  the  two-page  Ex- 
hibits when  they  are  bound  in  a  Report. 


THE  WILLIAMS  and   HENDERSON 
Philadelphia, 


Balance  Sheet, 


Assets: 

Plant  and  Equipment: 

Real  Estate  and  Buildings, 

Machinery, 

Tools  and  Movables, 

Office  Furniture  and  Fixtures, 

Stable  Equipment, 

Total, 

Cash  on  hand,  December  31,  1901: 
Office  Bank, 
Royal  National  Bank, 
Total, 

Accounts  Receivable: 

Sales  Ledger,  Balance  of  Control 

Account, 

Frederick  W.  Vincent, 

Salesmen's  Advances, 

Total  as  per  Exhibit  VII, 

Bills  Receivable  as  per  Exhibit  VIII, 

Inventories,  December  31,  1901: 
Merchandise, 
Material, 
Supplies, 
Total, 

Unexpired  Insurance  as  per  Exhibit 
IX. 


Total  Assets, 


341 

609 

82 

139 

842 

IS 

129  395 

01 

3 

981 

17 

10 

401 

39 

400 

00 

94 

761 

.82 

no 

401 

.72 

10 

000 

.00 

4 

981 

.22 

207 

431 

.87 

SI 

606 

.6S 

4 

122 

39 

625  229.54 


95  161.82 


125  382.94 
II  500.00 


263  160.91 


411 .81 
I  120  847.02 


Report  Fojrm  No.  28. 


268 


WOODENWARE    COMPANY, 
Pennsylvania. 


Exhibit  I. 


Dbcbmbbr  31,   1 90 1. 


Liabilities: 

Capital   Stock  (Authorized   4  000 
Shares  @  $100), 

Surplus  Account,  Balance  as  per 
Exhibit  II. 

Bills  Payable,  as  per  Exhibit  X, 

Accounts  Payable,  as  per  Exhibit 
XI. 

Total  Current  Liabilities, 


Total. 


50  000.00 


50  220.35 


400  000.00 


620  626.67 


100  220.35 


I   120  847.02 


269 


THE    WILLIAMS   and   HENDERSON 

Philadelphia, 

Surplus  Account  for  the 


Debits: 


Dividends : 


Dividend  No.  8,  Feb.  12,  1 90 1,  3%  $12  000.00 
Dividend  No.  9,  Aug.  10,  1901,  3%  12  000.00 
Total,  


Plant  and  Equipment  charged  off  as  per  minutes 
of  meeting  of  Board  of  Directors  held  July  15, 
1 90 1, 

Balance,  being  Surplus,  December  31,  1901,  Ex- 
hibit I, 


Total, 


24  000.00 


75  000.94 


620  626.67 


819  627 .61 


Report  Form  No.  29. 


270 


WOODENWARE   COMPANY, 
Pennsylvania. 

Year  Ending  December  31,  1901. 


Exhibit  II. 


Credits: 

Balance  of  Surplus  Account,  December  31,  1900, 

Net  Profits  for  the  year  1901  carried  from  Profit 
and  Loss  Account.  Exhibit  III, 

Capital  Stock  Donated,  100  Shares,  par  value. 


750  762.13 

58  865.48 

10  000.00 


371 


THE   WILLIAMS    and    HENDERSON 

Philadelphia, 

Profit  and  Loss  Account  for  the 


. 

Debits: 

General  Expenses: 

Office  Supplies  and  Expense, 

Office  Salaries  and  Wages, 

Postage, 

Telegrams  and  Telephone, 

Freight  and  Expressage, 

Cartage, 

Sundries, 

Total, 

Selling  Expenses: 

Salesmen's  Salaries, 

Salesmen's  Expenses, 

Advertising, 

Commission  and  Brokerage, 

Gratis  Account, 

Sundry  Selling  Expenses, 

Total, 

Bad  Accounts,  as  per  Exhibit  XII, 

Balance  carried  down, 

4  743-16 

20  692.41 

947 -60 

1  128.15 

3  942.17 

4  753-21 

5  982.77 

10  407.81 
5  493  14 
5  841.77 

11  223.88 

I  071-33 
3  985-44 

42  189.47 

38  023.37 

I  987.32 

49  245-91 

Total, 

131  446.07 

Interest  and  Discount  Expense: 

Interest  on  Notes  and  Accounts, 

Discount  on  Sales, 

Total, 

Balance,  being  Net  Profits  carried  to 
Surplus  Account,  Exhibit  II, 

4  722.15 
10  777-45 

15  499-60 
58  865.48 

Total, 

74  365  08 

Report  Form  No.  30. 


273 


WOODENWARE   COMPANY, 
Pennsylvania. 


Exhibit  III. 


Year  Ending  December  31.  1901 


Credits: 

Gross    Profits   carried   from    Trading 
Account,  Exhibit  V, 

Recovered  on  Bad  Accounts, 

131  05136 
394.71 

'\^ 

Total, 

131  446.07 

Balance  carried  from  above, 

Interest  and  Discount  Earnings: 

Interest  on  Notes  and  Accounts, 
Discount  on  Purchases, 
Total, 

3  7"-8S 
21  407.32 

49  245-91 

25  119.17 

Total, 

74  365.08 

273 


THE    WILLIAMS   and   HENDERSON 

Philadelphia, 

Trading  Account  for  the 


Debits: 

Inventory  of  Merchandise,  December  31,  1900. 
(No   responsibility  assumed    for  quantities  and 
prices.) 

Purchases  of  Merchandise  for  the  year  1 90 1 , 

Net  Cost  of    Manufacturing  carried    from   the 
Manufacturing  Account,  Exhibit  IV, 

Total, 

Less:  Inventory  of  Merchandise,  December  31, 
1 90 1.       (No    responsibility    assumed    for 
quantities  and  prices.) 

218  777.40 
37  601.22 

320  495-57 

576  874.19 
207  431-87 

Cost  of  Sales, 

Balance  being  Gross  Profit  on  Sales  carried  to 
Profit  and  Loss  Account,  Exhibit  II, 

369  442.32 
131   051-36 

Total, 

500  493-68 

Report  Form  No.  31, 


274 


WOODENWARE   COMPANY. 
Pennsylvania. 


Exhibit  IV. 


Year  Ending  December  31,  1901. 


Credits: 

Sales  of  Merchandise  for  the  year  1901, 
Less:  Returns  and  Allowances, 

531  827.90 
31  334.22 

Net  Sales  of  Merchandise, 

500  493-68 

"\ 

Total, 

500  493-68 

27s 


THE   WILLIAMS   and   HENDERSON 

Philadelphia, 

Manufacturing  Account  for  the 


Debits: 

Inventory  of    Material,  December    31, 
1900.     (No  responsibility  assumed    for 
quantities  and  prices.) 
Purchases  (Net)  for  the  year  1901, 

Total, 

Deduct:  Inventory  of  Material,  Decem- 
ber 31,1901.  (No  responsibility  ' 
assumed    for    quantities    and 
prices.) 

41  701.50 
190  333-11 

' 

232  034.61 
51  606.65 

Cost  of  Material  Consumption, 

Labor, 

Manufacturing  Expenses: 

Sundry  Expenses  and  Supplies, 

Supervision,  Salary  and  Expense, 

Heat,  Light  and  Power, 

Insurance  and  Taxes, 

Accidents, 

Repairs  and  Renewals, 

Depreciation, 

Total, 

7  575.22 
10  954.60 

4  777-83 
9  662.55 
I  471-82 
3  788.69 
15  786.44 

180  427.96 
97  542.11 

54  017. IS 

Total, 

331  987.22 

Report  Form  No.  32. 


276 


WOODENWARE   COMPANY, 
Pennsylvania. 


Exhibit  V. 


Year  Ending  December  31,  1901. 


Credits: 

Sales  of  Waste, 

Balance  being  Net  Cost  of  Manufactur- 
ing carried   to  Trading  Account,   Ex- 
hibit IV, 

II  491-65 
320  49557 

""x„ 

Total. 

331  987.22 

277 


THE    WILLIAMS    and    HENDERSON 

Philadelphia, 

Comparative  Statement  of  the  Assets  and  Liabilities  of  the 


1900 

1901 

Assets: 

Plant  and  Equipment: 

Real  Estate  and  Buildings, 

516  610.76 

341   609.82 

Machinery, 

147   202.26 

139  842.15 

Tools  and  Movables, 

136  205.38 

129  395-01 

Office   Furniture  and   Fix- 

tures, 

4  423.52 

3   981.17 

Stable  Equipment, 

II    557-IO 

10  401.39 

Cash  on  hand. 

87   544.38 

95   161.82 

Bills  Receivable, 

9   100.00 

II    500.00 

Accounts  Receivable: 

Sales  Ledger, 

120  431 . II 

no  401  .  72 

Frederick  W.  Vincent, 

10  000.00 

Salesmen's  Advances, 

3  987.41 

4  981.22 

Inventories: 

Material, 

41    701-50 

51   606.65 

Merchandise, 

2x8  777.40 

207  431-87 

Supplies, 

3   764.18 

4   122.39 

Unexpired  Insurance, 

517.93 

411. 81 

Totals, 

I   301   822.93 

I    120  847.02 

Report  Form  No.  33. 


278 


WOODENWARE   COMPANY, 
Pennsylvania. 

Balance  Sheets  for  December  31,   1900  and  1901. 


Exhibit  VI. 


1900 

400  000.00 

750  762.13 

60  000.00 

9 I   060 . 80 


I  301   822.93 


190Z 

400  000.00 
620  626.67 

50  000.00 
SO  220.35 


I  120  847.02 


279 


THE    WINDHAM    FOUNDRY    AND     MANUFACTURING    COMPANY, 

Report  on  audit  for  the  three  years  ending  December  31,  1904;  December  30,  1905, 

and  December  31,  1906. 


The  books  supporting  this  report  are  as 
follows : 

Cash  Books,  Nos.  31  and  32; 
General  Journals,  Nos.  19,  20,  and  21; 
Purchase  Journal,  Nos.  8  and  9 ; 
Sales  Books,  Nos.  41  to  54; 
General  Ledgers,  Nos.  5,  6,  and  7; 
Sales  Ledgers,  Nos.  20,  21,  and  22; 
Purchase  Ledgers,  Nos.  10,  11,  and  12; 
Sales  Credit  Book.  No.  8. 


19 


TEXT    OF    REPORT 


CLARENCE  M.  DAY, 

CERTIFIED    PUBLIC    ACCOUNTANT. 

NEW   YORK. 

New  York,  April  lO,  1907. 
Mr.  Edward  H.  Henderson, 

90  Wall  Street,  New  York. 

Dear  Sir:  In  accordance  with  your  instructions,  I  have  made  an 
audit  of  the  books  and  accounts  of  The  Windham  Foundry  and 
Manufacturing  Company  of  San  Francisco,  California,  for  the  three 
years  ending  December  31,  1906,  and,  as  a  result  of  said  audit,  I 
submit  herewith  the  following  exhibits,  viz: 

Exhibit  I  (page  288),  Balance  sheet  of  The  Windham  Foun- 
dry and  Manufacturing  Company  on 
December  31,   1906, 

Exhibit       II  (page  290),  Statement  of  Surplus  for  the  three  years 

ending  December  31,  1906, 

Exhibit     III  (page  292),  Statements    of    Profit    and    Loss    for   the 

three  years  ending  December  31,  1904; 
December  30,  1905,  and  December  31, 
1906, 

Exhibit     IV  (page  294),  Statement    of    the     Manufacturing    and 

Trading  Accounts  for  the  year  ending 
December  31,    1904, 

Exhibit       V  (page  296),  Statement    of    the     Manufacturing    and 

Trading  Accounts  for  the  year  ending 
December  31,   1905, 

283 


284  ACCOUNTING    PRACTICE 

Exhibit     VI  (page  298),  Statement     of    the     Manufacturing     and 

Trading  Accounts  for  the  year  ending 
December  31,  1906, 

Exhibit    VII   (page  300),  Comparative    Statement    of    Assets    and 

LiabiHties  of  Balance  Sheets  for  Decem- 
ber 31,  1903;  December  31,  1904;  De- 
cember 30,  1905;  December  31,  1906, 
and  the  Trial  Balance  for  April  i,  1907, 

Exhibit  VIII  (page  302),  Comparative  Statement  of  the  Profit  and 

Loss  for  the  three  years  ending  Decem- 
ber 31^   1906, 

Exhibit     IX  (page  304),  Condensed    Trial    Balance    for   April    i, 

1907, 

Exhibit       X  (page  306),  Condensed    Statement  of  the    Profit  and 

Loss  Accounts  (showing  the  results  as 
they  appear  on  the  books  of  the  com- 
pany) for  the  year  ending  December  31, 
1906, 

Exhibit     XI  (page  308),  Condensed    Statements    of    the    business 

done  with  T.  Dixon  and  Company  dur- 
ing the  years  1904  and  1905,  and  a  com- 
parison of  the  sales  to  them  and  the  total 
sales  during  the  years  1904,  1905,  and 
1906,  and 

Exhibit   XII  (page  309),  Comparative  Statement  for  the  three  years 

ending  December  31,  1906,  showing  per- 
centages of  the  expenses  and  profits  to 
the  net  sales. 

In  connection  with  the  above,  I  report  for  your  consideration  the 
following  matters: 


TEXT  OF  REPORT 


285 


Real  Estate,  $72,500.00, 


The  real  estate  consists  of  lots  Nos.  40,  41,  42,  43,  44,  89,  90,  91, 
92,  and  93  in  block  No.  941  of  the  official  city  map.  There  are  500 
feet  fronting  on  Lakeview  Avenue  and  200  feet  fronting  on  Forty- 
first  Street.  The  entire  property  is  used  for  factory  purposes  and 
the  assessed  valuation,  according  to  1906  tax  bills,  was  $70,000.00. 

Tools  and  Fixtures,  $g,i5g.oi. 

The  value  of  tools  and  fixtures  is  taken  from  the  ledger  account 
for  tools  and  fixtures.  The  account  is  composed  mainly  of  purchases 
of  small  tools,  factory  and  office  fixtures.  No  provision  has  been 
made  for  depreciation  out  of  the  earnings  during  the  period  exam- 
ined, and  no  renewals  or  replacements  were  charged  against  profit 
and  loss.     In  my  opinion,  the  value  is  excessive. 

Patterns,  $32,^66.67. 

The  vakie  of  patterns  is  taken  from  the  ledger  account  for  pat- 
terns.. The  account  is  composed  of  charges  for  patterns  purchased 
and  manufactured,  and  in  addition  to  these  charges  are  the  following 
entries : 

December  15,  1904,  Increased  valuation  in  Pattern  Account,  $3,182.92 
December  i,  1905,  Increased  valuation  in  Pattern  Account,  2,329.97 
November  10,  1906,  Increased  valuation  in  Pattern  Account,    1,573.94 

These  entries  do  not  appear  to  have  been  authorized,  for  I  examined 
the  minute  book  and  found  nothing  relating  to  them  in  the  minutes 
of  the  meetings  of  the  Board  of  Directors.  In  my  opinion,  the 
valuation  is  excessive,  for  no  provision  was  made  for  depreciation. 

Register  Account  Machines,  Patterns,  etc.,  $12,^58.85. 

This  account  is  carried  on  the  ledger  at  the  valuation  stated,  and 
is  composed  of  the  following  items,  valued  as  per  books: 


286  ACCOUNTING    PRACTICE 

Model  Carfare  Register  Patents  and  Designs,  $6,ooo.cx) 

Special  Machinery  for  making  Registers,  4,190.00 

Patterns,  etc.,  used  in  making  Registers,  2,312.85 

Valuation  increased  without  authority,  456.00 


Total  (as  per  books),  $12,958.85 

In  my  opinion,  the  valuation  on  the  above  is  excessive,  because  no 
provision  was  made  for  depreciation. 

Wagons,  Carts,  and  Mules,  $592.50, 

An  inventory  of  wagons,  carts,  mules,  harness,  and  appurtenances 
was  taken  on  December  31,  1906,  and  I  was  informed  that  the  inven- 
tory was  appraised.  I  have  examined  the  clerical  accuracy  of  the 
inventory,  but  assume  no  responsibility  for  the  quantities  and  prices. 

Inventories,  December  ^i,  igo6,  $52,^28.84. 

No  responsibility  is  assumed  for  the  quantities  and  prices  of  these 
inventories. 

Fronts. 

An  entry  was  made  charging  the  profit  and  loss  account  for  1905, 
and  crediting  the  profit  and  loss  account  for  1906  with  $1,500.  This 
item  was  not  considered  when  compiling  the  statements  embodied 
in  this  report. 

Sales  to  T.  Dixon  and  Company. 

Exhibit  XI  shows  a  comparison  between  the  total  sales  and  the 
sales  made  to  T.  Dixon  and  Company. 

Earning  Capacity. 

The  relation  of  the  earnings  to  the  capital  stock  for  the  three 
years  under  examination  is  entitled  to  serious  consideration.  Espe- 
cially in   view  of  these   facts:   the  capital   stock  has  been   increased 


TEXT  OF  REPORT 


287 


without  increasing  the  working  capital,  and  no  provision  was  made 
for  depreciation.  The  earnings  for  the  year  1904  were  .0072;^  of 
the  capital  stock;  the  earnings  for  the  year  1905  were  .1347^^  of  the 
capital  stock;  the  earnings  for  the  year  1906  were  .0551^1^  of  the 
capital  stock,  and  the  average  earnings  for  the  three  years  were  .o655<i^ 
of  the  average  capital  stock.  The  average  earnings  for  three  years 
were  about  .05^  of  the  capital  stock  as  at  April  i,  1907. 

These  statements  I  certify  to  be  correct  in  accordance  with  the 
books,  accounts,  and  vouchers. 

Respectfully  submitted, 

Certified  Public  Accountant. 


THE   WINDHAM    FOUNDRY 

San  Francisco, 


Balance  Sheet, 


ASSETS. 

Plant  and  Equipment: 

Real  Estate, 

72   500.00 

Tools  and  Fixtures, 

9   15901 

Patterns, 

32   966.67 

Register  Account,  Machines,  Pat- 

terns, etc., 

12   958.85 

Wagons,  Carts  and  Mules, 

592.50 

Total, 

128  177  .03 

Inventory  December  31,  1906: 

Pig  Iron, 

12  484.60 

Fuel. 

I    108.00 

Merchandise  manufactured  and  in 

process, 

39   136.24 

Total, 

52  728.84 

Cash,  Balance,  December  31,  1906, 

7  168.22 

Bills      Receivable,     as     per      Exhibit 

816.49 

(Omitted) , 

Accounts  Receivable: 

Sundries  as  per  Exhibit  (Omitted) , 

23   389.01 

E.  F.  Wilton  &  Co.,  samples. 

76.94 

J.  Manton,  samples. 

130.88 

Metropolitan     Improvement     Co., 

Pool  Tax  Acct.. 

765.78 

Total, 

24  362.61 

Unexpired  Insurance  (as  per  books) , 

881 .74 

Total, 

$214  134.93 

Report  Form  No.  34. 


288 


AND   MANUFACTURING   COMPANY. 
California. 


Exhibit  I. 


December  31,   1906. 


LIABILITIES. 


Capital  Stock: 
Authorized, 
Unissued  December  31,  1 906, 

Amount  outstanding  December  3 1 , 
1906, 

Mortgage  on  Real  Estate — Interest  at  $%, 

Interest  Accrued  on  Mortgage  to  Decem- 
ber 31,  1906, 

Accounts  Payable: 

Sundries  for  Material  and  Supplies, 
Sundries  for  Rebates  (Ledger  acct. 
722), 

Stockholders  Accounts  as  per  Ex- 
hibit (Omitted), 
Total  as  per  Statement  Book, 

Profit  and  Loss,  Balance  as  per  Exhibit  II , 


200  000.00 
61  000.00 


5  609.12 

1  320.72 

2  463.28 


139  000.00 
50  000 .00 

716.00 


9  39312 
15  025.81 


$214  134-93 


289 


THE   WINDHAM    FOUNDRY 

San  Francisco, 

Statement  of 
For  the  Three  Years  Ending 


DEBITS. 

Dividends  Paid  During  the  Year  1904, 
Balance,  December  31,  1904,  carried  down, 

3  960.00 
6  393-99 

___ — -—     ^ 

$10  353-99 

Dividends  Paid  During  the  Year  1905, 

Balance,  December  30,  1905,  carried  down, 
(See  notations  in  report.) 

4  230.00 
22  469.07 

^ -^         ^ 

$26  699.07 

Dividends  Paid  During  the  Year  1906, 
Balance,  December  31,  1906, 

16  680.00 
15  025.81 

___ — 

$31    705.81 

Report  Form  No.  35. 


P90 


AND   MANUFACTURING   COMPANY, 
California. 


Exhibit  II. 


Surplus 
December  31,   1906. 


CREDITS. 

Balance,  December  31,  1903, 

5  842.62 

Net  Profits,  carried  from  Profit  and  Loss  Statement, 

for  the  Year  1904,  Exhibit  III. 

926.45 

Increased  Valuation  on  Register  Account, 

456.00 

Increased  Valuation  on  Pattern  Account, 

3   128.92 

^10  353-99 

Balance,  carried  from  above. 

6  393-99 

Net  Profits,  carried  from  Profit  and  Loss  Statement, 

for  the  Year  1905,  Exhibit  III, 

17  465.11 

Increased  Valuation  on  Pattern  Account, 

2  329.97 

Dividends  Waived, 

510.00 

$26  699.07 

Balance,  as  at  December  30,  1905,  carried  from  above, 

22  469.07 

Net  Profits,  carried  from  Profit  and  Loss  Statement, 

for  the  Year  1906,  Exhibit  III, 

7   662.80 

Increased  Valuation  on  Pattern  Account, 

I   573-94 

$31    705.81 

291 


THE    WINDHAM    FOUNDRY 
San  Francisco, 

Statements  of 
For  the  three  years  ending,  December  31,  1904, 


DEBITS,    1904. 


Bad  Accounts  charged  off  during  the  year  1904, 

Balance,  being  Net  Profit  for  the  year  1904,  carried  to 
Surplus  Account,  Exhibit  II, 


42.23 
926.45 


DEBITS,    1905. 


$968.68 


Bad  Accounts  Charged  off  during  the  year  1905, 

Balance,  being  Net  Profit  for  the  year  1905,  carried  to 
Surplus  Account,  Exhibit  II, 


483.42 


17  465.11 


$17  948.53 


DEBITS,    1906. 


Bad  Accounts  Charged  off  during  the  year  1906, 

Balance,  being  Net  Profit  for  the  year  1906,  carried  to 
Surplus  Account,  Exhibit  II, 


287.43 
7   662.80 


$7   950.23 


Report  Form  No.  36. 


292 


AND    MANUFACTURING   COMPANY, 
California. 

Profit  and  Loss. 

December  30,  1905,  and  December  31,  1906. 


Exhibit  III. 


CREDITS,    1904. 


Balance  carried  from  the  Manufacturing  and  Trading 
Account  for  the  year  1904,  Exhibit  IV, 

Interest  Account  for  the  year  1904, 


CREDITS,    1905. 


Balance  carried  from  the  Manufacturing  and  Trading 
Account  for  the  year  1905,  Exhibit  V, 

Interest  Account  for  the  year  1905, 


CREDITS,    1906. 


Balance  carried  from  the  Manufacturing  'and  Trading 
Account  for  the  year  1906,  Exhibit  VI, 

Interest  Account  for  the  year  1906. 


859.87 
108. 8i 


$968.68 


17 

604 

07 

344 

46 

SI7 

948 

S3 

7    700-53 


249.70 


$7   950.23 


*93 


THE    WINDHAM    FOUNDRY 
San  Francisco, 

Statement  of  the  Manufacturing 
For  the  Year  Ending 


DEBITS. 


Material  and  Supplies: 

Inventory,  December  3 1 , 

1903. 

Purchases  during  the  year 

1904, 

Total, 

Less  Inventory,  December  3 1 , 
1904, 

Consumption  of: 
Merchandise, 
Pig  Iron, 
Fuel, 

Total  Material  and  Supplies, 

Labor: 

Pattern  Makers, 

Molders, 

Finishers 

Miscellaneous, 

Total  Labor, 
Expenses: 

Salary, 

Rent, 

Stable  Expense, 

Insurance, 

Sundries, 

Total  Expenses, 

Balance,  being  Gross  Profits, 
carried  to  Exhibit  III, 


Fuel 


I  428.25 
I   246.16 


12  674.41 
I   283.75 


II  390.66 


Pig  Iron 


7  229.65 
29   106.25 


36  335-90 

5  532.25 


30  803.65 


3  005-53 
47  745-32 
19  947.00 
32  653.15 


6  995.28 
5  000.04 
I  022.55 

944-95 
3  884.18 


Merchandise 


46  012 .49 
98  891.16 


144 

903 

000 

•65 

.86 

107 
30 

II 

902.79 
803.65 

390.66 

150  097.10 


103  351.00 


17  847 .00 

859.87 


$272  154.97 


Report  Form  No.  37. 


294 


AND   MANUFACTURING   COMPANY, 
California. 

AND  Trading  Accounts. 
December  31,   1904. 


Exhibit  IV. 


CREDITS. 


Sales  for  the  year  1904, 
Less  Credits  for: 

Returns  and  Allowances. 
Deductions,  Freight,  etc., 
Total  Credits, 

Net  Sales, 


6  463 .61 

2  878.08 


281  496.66 


9  341  69 


272  154.97 


$272  154.97 


295 


THE   WINDHAM   FOUNDRY 
San  Francisco, 

Statement  of  the  Manufacturing 
For  the  Year  Ending 


.  DEBITS. 


Material  and  Supplies: 

Inventory,  December  3 1 , 

1904, 

Purchases  during  the 

year  1905, 

Total, 

Less  Inventory,  Decem- 
ber 30,  1905, 

Consumption  of: 
Merchandise, 
Pig  Iron, 
Fuel, 

Total  Material  and  Supplies, 

Labor: 

Pattern  Makers, 
Molders, 
Finishers, 
Miscellaneous, 
Total  Labor, 

Expenses: 
Salary, 
Rent, 

Stable  Expenses, 
Insurance, 
Sundries, 
Total  Expenses, 

Balance,  being  Gross  Profits, 
carried  to  Exhibit  III, 


Fuel 


I   283.75 
II  937.00 


13  220.75 
2  014.75 


II   206.00 


Pig  Iron 


5  532.25 
30  490-79 


36  023.04 
8  366.30 


27  656.74 


2  749-93 
47  791-15 
20  260.93 
32  924.58 


7  339-92 
5  000.01 

1  142.75 
935-83 

2  992.57 


Merchandise 


37  000 .86 
92   282.47 


129   283.33 
36  342.3s 


92  940.98 
27  656.74 
II    206.00 


131   803.72 


103    726.59 


17  411  .08 


17   604.07 


$270   545-46 


Report  Form  No.  38. 


296 


AND   MANUFACTURING   COMPANY, 
California. 

AND  Trading  Accounts. 
December  30,   1905. 


Exhibit  V. 


CREDITS. 


Sales  for  the  year  1905, 

Less  Credits  far: 

Returns  and  Allowances, 
Deductions  Freight,  etc.. 
Register  Rebates, 
Total  Credits, 

Net  Sales, 

Pool  Tax  fori  go  s. 


3  93218 
3  664.68 
I  493-86 


278  149.68 


9  090.72 


269  058.96 
I  486.50 


$270  545-46 


20 


297 


THE    WINDHAM    FOUNDRY 
San  Francisco, 

Statement  of  the  Manufacturing 
For  the  Year  Ending 


DEBITS. 


Materials  and  Supplies: 

Inventory    December  30, 

1905. 

Purchases  during  the  year, 

Total, 

Less  Inventory  December 
31,  1906, 

Consumption : 
Merchandise, 
Pig  Iron, 
Fuel, 

Total  Material, 

Labor: 

Pattern  Makers, 
Molders, 
Finishers, 
Miscellaneous, 
Total  Labor, 

Expenses: 
Salary, 

Rent  and  Real  Estate  Ex- 
pense, 

Stable  Expense, 
Insurance, 
Sundries, 
Total  Expenses, 

Balance    being    Gross    Profits 
carried  to  Exhibit  III, 

Fuel 

Pig  Iron 

Merchandise 

2   014-75 
9  984-58 

8  366.30 
33  883.39 

36  342.35 
65  004.66 

II  999-33 
I   108.00 

42  249.69 
12  484.60 

loi  347 .01 
39  136.24 

10  891.33 

29  765-09 

62  210.77 

29  765-09 
10  891.33 

2  365 -42 

1    44  794-33 
18  897.82 
31  848.06 

102  867.19 

6  859.92 

5  536.78 
941.40 
881.73 

3  221.19 

97  905  63 

1 
i 

1      17  441-02 

1 

7  700.53 

$225  914.37 

Report  Form  No.  39. 


298 


AND   MANUFACTURING   COMPANY, 
California. 


Exhibit  VI. 


AND  Trading  Accounts. 
December  31,   1906. 


CREDITS. 


Sales  for  the  year  1906, 

Less  Credits  for: 

Returns  and  Allowances, 
Deductions  Freight,  etc., 
Register  Rebates  for  1 906, 
Total  Credits, 

Net  Sales, 


5  481.15 

2  857-74 

3  47471 


237  727  97 


I  8 1 3 . 60 


225  91437 


$225  91437 


lagg 


THF   WINDHAM   FOUNDRY 
San  Francisco, 

Comparative  Statement  of  the"  Assets 
For  December  31,  1903,  December  31,  1904,  December  30,  1905, 


Assets 


Real  Estate, 

Tools  and  Fixtures, 

Patterns, 

Register  Account, 

Wagons,  Carts  and 
Mules, 

Inventory: 

Pig  Iron, 
Fuel,  I 

Merchandise, 

Cash  on  Hand, 

Bills  Receivable, 

Accounts   Receiva- 
ble: 

Customers, 

Sundries, 

Unexpired      Insu- 
rance, 

Expense  Accounts, 
1907, 


1903 


8  489 

25  933 
12  272 


700.00 


7  229 

I  428 

46  012 

5  100, 

748, 


2,3  734 
382 


$142  033.04 


904 

8 

489 

93 

29 

062 

76 

12 

958 

85 

700 

00 

5 

532 

25 

I 

283 

75 

37 

000 

86 

4  405 

48 

I 

232 

20 

42 

768 

.04 

514 

.82 

$143 

948 

•94 

1 90s 


8  48993 
31  392.73 
12  958.85 

652.50 

8  366.30 

2  014.75 

36  342.35 

18  232.15 
2  955-44 


38  887.70 
769.87 


$161  062.57 


I 

906 

72 

500 

00 

9 

159 

01 

32 

966.67 

12 

958.85 

592 

50 

12 

484 

60 

I 

108 

00 

39 

136 

24 

7 

168 

22 

816 

49 

23 

389 

.01 

973 

.60 

881 

•74 

$214 

134 

•93 

loi  440.00 

9  159.01 

32  966.67 

12  958.85 


567.50 


5  710.27 
636.49 


30  804.84 
I  454.24 


107  424.50 
$303  122.37 


Report  Form  No.  40. 


300 


AND   MANUFACTURING  COMPANY. 
California. 


Exhibit  VII. 


AND  Liabilities  of  Balance  Sheets. 

December  31,  1906,  and  the  Trial  Balance  for  April  i,  1907. 


Liabilities 


Capital  Issue, 

Mortgage  on  Real 
Estate, 

Interest  Accrued  on 
Mortgage, 

Accounts  Payable: 
Sundries, 
Stockholders, 

Profit     and    Loss 
Balance, 

Income  Accounts, 
907. 


128  200.00 


5  379-75 
2  110.67 


5  842.62 


$142  033.04 


1904 


129  000.00 


5  882.58 
2  672.37 


6  393-99 


$143  948.94 


1905 


129  600.00 


7  182.87 
2  085.37 


22  194.33 


$161  062 .57 


1906 


139  000.00 


50  000.00 


716.00 


6  929.84 
2  463.28 


15  025.81 


$214  134.93 


1907 


173  800.00 


50  000 .00 


1  32737 

2  439.84 


7  226.57 


68  328.59 


$303  122.37 


301 


THE    WINDHAM    FOUNDRY 

San  Francisco, 

Comparative  Statement  of  the 
For  the  Three  Years  Ending 


Debits 

1904 

190S 

1906 

Material  Consumption: 

Merchandise, 

107  902.79 

92  940.98 

62  210.77 

Pig  Iron, 

30  803.65 

27  656.74 

29  765.09 

Fuel, 
Total, 

II  390.66 

II  206.00 

10  891.33 

150  097 .10 

131  803.72 

102  867 .19 

Labor: 

Pattern  Makers, 

3  005.53 

2  749-93 

2  365.42 

Molders, 

47  74532 

47  791-15 

44  794-33 

Finishers, 

19  947.00 

20  260.93 

18  897.82 

Miscellaneous, 

32  653.15 

32  924.58 

31  848,06 

Expenses: 

Salaries, 

6  995  .28 

7  33992 

6  859.92 

Rent  and   Real  Estate 

Expenses, 

5  000.04 

5  000.01 

5  536.78 

Stable  Expense, 

1  022.55 

I  142.75 

941-40 

Insurance, 

944-95 

935  83 

881.73 

Sundries, 

3  884.18 

2  992.57 

3  221 .19 

Bad  Accounts, 

42.23 

483.42 

287.43 

271  337-33 

253  424.81 

218  501 .27 

Net  Profits  for  Year, 

926.45 

17  465.11 

7  662.80 

■> 

$272  263.78 

$270  889.92 

$226  164.07 

Report  Form  No.  41. 


30a 


AND   MANUFACTURING  COMPANY, 
California. 

Profit  and  Loss. 
December  31,   1906. 


Exhibit   VIII. 


Credits 


Sales  for  the  Year, 

Less  Credits  for: 

Returns  and  Allowances, 
Deductions,  Freight,  etc., 
Register  Rebates, 

Net  Sales  for  the  Year, 

Pool  Tax, 

Interest  Account, 


1904 


281  496.66 


6  463 .61 
2  878.08 


272  154.97 


[08.81 


$272  263.78 


190S 


278  149.68 

3  932.18 
3  664.68 
I  493-86 


269  058 .96 

I  486.50 

344.46 


$270  889.92 


1906 


237  72797 

5  4811S 

2  857.74 

3  47471 


225  91437 


249.70 


$226  164.07 


303 


THE   WINDHAM   FOUNDRY 
San  Francisco, 

Condensed  Trial  Balance, 


DEBITS. 

Plant  Equipment  (as  per  books) : 
Real  Estate, 

loi   440.00 

Tools  and  Fixtures, 

9   15901 

Patterns,  Machinery,  etc.. 

32   966.67 

Register    Account,    Machines, 

Patterns,  etc.. 

12   958.85 

Wagons,  Carts,  Mules,  etc.. 
Total, 

567-50 

157  092.03 

Inventory,  December  31,   1906   (as 

per  books). 

52   728.84 

Cash  Balance,  April   i,    1907    (cer- 

tified). 

5   710.27 

Bills    Receivable,    as    per    Exhibit 

(omitted) , 

636.49 

Accounts  Receivable: 

Customers, 

30  804.84 

Samples, 

207 .82 

Metropolitan  Impt.  Co., 

I    246.42 

Total, 

32   259.08 

Deductions  Freight,  etc., 

791-65 

Labor — Molders, 

II   371.85 

"         Finishers, 

5  36769 

"         Miscellaneous, 

8  281. II 

"  •      Pattern  Makers, 

574-34 

Fuel  Account, 

2  333-71 

Iron  Account, 

3   138-50 

Merchandise, 

7   178.30 

Special  Merchandise, 

9  971.26 

Expense, 

2  620. 16 

Stable  Expense, 

675-35 

Real  Estate  Expense, 

I    502.22 

Insurance, 

889.52 

Total, 

54  695.66 

$303    122.37 

Report  Form  No.  42. 


304 


AND   MANUFACTURING   COMPANY. 
California. 

April  1,   1907. 


Exhibit  IX. 


CREDITS. 


Capital  Stock  Issued, 
Mortgage  on  Real  Estate, 

Accounts  Payable,  as  per  Exhibit 
(omitted) : 

Purchase  Accounts, 

Stockholders, 

Total, 

Profit  and  Loss  Accounts, 
Sales  Account, 
Interest  Account, 


1  32737 

2  439  84 


173  800.00 
50  000.00 


3  767-21 

7  226.57 

68  298.74 

29.85 


$303  122.37 


.305 


THE   WINDHAM    FOUNDRY 

San  Francisco, 

Condensed  Statement  of  the 

(Showing  results  as  they 

For  the  Year  Ending 


DEBITS. 


Register  Rebates  for  account  of  1 905 , 

I   493-86 

Expense  Item  for  account  of  1905, 

47.90 

Bad    Accounts,     as     per     Exhibit 
(omitted), 

287.43 

Transferred  to  Profit  and  Loss  for 
the  year  1 906  (carried  below) , 

I    500.00 

Dividends: 

12%  to  Stockholders,  as  per 

Exhibit  (omitted), 

12%   to  Stockholders,  as  per 

Exhibit  (omitted), 

Total, 

15  360.00 
I   320.00 

16  680.00 

Balance  of  Account  of  Profits  for 
1905  (carried  below). 

4  001 .64 

$24  010.83 

Balance  of  Profit  and  Loss,  Decem- 
ber 31,  1906, 

15  025.81 

$15  025.81 

Report  Form  No.  43. 


306 


AND   MANUFACTURING   COMPANY, 

California. 

Profit  and  Loss  Accounts 

appear  on  the  books.) 

December  31,  1906. 


Exhibit  X. 


CREDITS. 


Balance,  December  30,  1905, 

22   194.33 

Pool  Tax,  for  account  of  1905, 

I   486.50 

Dividends  Waived: 

J.  J.  Baxter, 

30.00 

J.T.  Shieller. 

30.00 

R.  N.  Smith, 

150.00 

Perry  Belmont, 

120.00 

Total, 

330.00 

^  . 

$24  010.83 

Balance  of  Account  of  Profits  for 

1905  (from  above), 

4  001 .64 

Profits  of  1905  carried  from  above 

I   500  00 

Interest  Account  for  1906, 

249.70 

Profits  on  Manufacturing  and  Trad- 

ing for  1906, 

7  700.53 

Increased  Valuation  placed  on  Pat- 

tern Account, 

I   573-94 

$15  025.81 

307 


Exhibit  XI. 
THE   WINDHAM   FOUNDRY   and   MANUFACTURING   COMPANY, 

San  Francisco,  California. 

Condensed  Statements  of  the   Business  Done  with  T.  Dixon  &  Com- 
pany During  the  Years  1904  and  1905. 


Balance,  December  31,  1903, 
Sales,  etc.,  during  1904, 

Cash, 

Sundry  Credits, 

Total  Credits, 

Balance,  December  31,  1904, 
Sales,  etc.,  during  1905, 

Cash, 

Sundry  Credits, 

65   677.98 
70   780.85 

4    910. 56 
145    735.99 

150    646.55 

71    163.0*0 
68  375.70 

136.458.83 

14    187.72 
140    681 . 55 

•  -    .  • 

154    869.27 

139    538.70 

Balance,  December  30,  1905, 

$15    330.57 

.-     . 

Comparison  of  Total  Sales  and  Sales  to  T.  Dixon  &  Co. 

Sales 

T.  Dixon  &  Co. 

1904 

1 00  <; 

272    154-97 
^269    058.96 
225    914-37 

145   375-99 

140   681 . 55 

92   610.73 

1Q06 

Three  Years, 

$767    128.30 

$378  668.27 

Report  Form  No.  44. 


308: 


Exhibit  Xll. 
THE   WINDHAM    FOUNDRY   and.  MAS^UFACXURING   COMPANY, 
San  Francisco,  California. 

Comparative    Statement    for    the    Three;    Years    Ending    December  31,    1906, 
Showing  the  Percentages  of  the  Expenses  and  Profits  to  the  Net  Sales. 


Material, 

Labor, 

Expense, 

Profits, 

Bad  Accounts, 

Gross  Sales, 
Allowances,  etc., 

Net  Sales, 
Interest, 


1904 


Amount 


150   097.10 

103   351-00 

•17   847.00 

926.45 

42.23 


281  496.66 
9  341.69 


272  154.97 
108.81 


Percent, 
of  net  , 
sales 


■55151 
37975 
06557 
00340 
00015 


03432 


190S 


Amount 


131    803.72 

103    726.59 

17   411 .08 

17    465.11 

483.42 


278  149.68 
9  090.72 


269  058.96 
344.46 


Percent 
of  net 
sales 


.48987 

•38551 
.06471 
.06491 
.00179 


,02379 


[906 


Amount 


102    867.19 

97    905-63 

17    441.02 

7  66?. 80 

287.43 


237  727-97 
II  813.60 


225  .914.37 
249.70 


Percent. 

of  net 

sales 


.45533 
•43337 
.07720 
.03392 
.00127 


05229 


Report  Form  No.  45. 


309 


THE   JAMES    BOAK   CORPORATION. 


Condensed  Trial  Balance,  December  5,   1905. 


Folio 

10 

Bond  Account, 

500.00 

15 

Bills  Receivable, 

8  910.00 

20 

Revenue  Account, 

40   70 1. .60 

25 

Office  Expense, 

2    140.60 

28 

Salary, 

10   407.15 

30 

Cash, 

2  .000.00 

35 

Stationery  and  Supplies, 

310. IS 

40 

Interest  and  Discount, 

I    105.10 

45 

Commission, 

405.11 

SO 

Heat  and  Light, 

III.  10 

60 

Bad  Accounts, 

47.00 

70 

Insurance, 

99.01 

80 

Bills  Payable, 

5  000.00 

91 

Capital, 

50  000.00 

Totals, 

24  930.12 

96  806.70 

Accounts  Receivable, 

104   711-23 

Accounts  Payable, 

32  834.65 

Totals, 

129  641.35 

j      129  641.35 

Report  Form  No.  46. 


310 


Messrs.    DEMPSEY  &  COTTON. 


Schedule  of  Bills  Receivable,  December  31,  1905. 


Maker 

Time 

Due  date 

Amount 

Davis  &  Clark, 

3  mos. 

Jan. 

15,  1906 

900.00 

James  Brice  &  Co., 

30  days 

14 

10,     " 

500.00 

A.  W.  Voss, 

60      " 

" 

31.     " 

100.00 

Samuel  Ross, 

90      " 

Feb. 

II,     " 

875.00 

Henry  Morgan, 

3  mos. 

Mch. 

IS.     " 

I    000.00 

Clark  &  Price, 

3       " 

Feb. 

5.     " 

400.00 

Samuel  Desevee, 

30  days 

•• 

15.     *' 

900.00 

Frank  &  Engle, 

60      " 

•• 

10,     •• 

I    000   00 

R.  W.  Bums  &  Son, 

30      " 

Jan. 

IS.     " 

100.00 

Kelley  &  Cole, 

3  mos. 

«> 

31.     " 

•  I    000.00 

Jones  &  Warren,     , 

4 

•• 

31.     " 

400.00 

Lewis  &  Fowler, 

3       " 

•• 

16.     ••      i 

I    000.00 

Washburn  &  Klare, 

30  days 

Feb. 

4,     " 

100.00 

Total, 

8   275.00 

Report  Form  No.  47. 


3" 


CLARENCE    M.    DAY, 
CERTIFIED    PUBLIC    ACCOUNTANT, 
lOO  BROADWAY. 


New  York,  April  5,  1902. 

THE   WILLIAMS    8c   HENDERSON   WOODENWARE    COMPANY, 
Philadelphia    Pennsylvania. 


Assets: 

Cash  on  Hand  and  in  Bank, 

Bills  Receivable, 

Accounts  Receivable, 

Inventory  of  Material  and  Merchandise, 

Unexpired  Insurance, 

Real  Estate  and  Buildings, 
Machinery  and  Equipment, 

Total  Assets, 


$  95   161.82 

II    500.00 

125  382.94 

263    160.91 

411. 81 

$341   609.82 
283  619.72 


$     495617.48 


$     625   229.54 


$1    120  847.02 


Liabilities: 

Accounts  Payable, 
Bills  Payable, 

Surplus, 
Capital  Stock, 

Total  Liabilities, 


$  50  220.35 
50  000.00 

$620  626.67 
406  000.00 


$  100  220.35 
$1  020  626.67 


$1  120  847.02 


I  hereby  certify  that  the  foregoing  statement,  in  my  opinion,  correctly  sets 
forth  the  financial  condition  of  The  Williams  &  Henderson  Wooden  ware  Com- 
pany as  at  the  close  of  business  on  December  31,  1901. 

Certified  Public  Accountant. 


Report  Form  No.  48. 


312 


INDEX 


Accommodation  paper,  78. 
Account  current,  77. 
Accounts  payable,  schedule  of,  208-9, 
266. 

verifying,  41, 
Accounts  receivable,  42. 

schedule  of,  263. 

verifying,  40. 
Accrued  taxes,  80. 
Adjustments  to  ledger,  15,  40. 
Administration  expenses,  80,  145. 
Amplified  trial  balance,  77, 
Analysis  for  a  summary  account,  27. 
Analysis  sheet,  28,  31,  35. 

deciding  headings  for,  29. 
Analyzing  account,  27. 

ledger,  54. 

extensive  accounts,  3;^. 
Arrangement  of  exhibits,  85. 
Arranging  the  books,  7. 
Arranging  the  working  papers,  14. 
Assets  and  habilities,  fixed,  7. 
Audit  of  the  cash,  17. 
Auditing  a  trading  business,  5. 
Auditing  a  manufacturing  business.  4. 
Auditor's  duty,  26. 
Automatic  cost  system,  130. 

Bad  debts  collected,  79. 

written  off,  79. 
Balance  sheet,  52,  236,  242,  256,  268, 
278,  288,  300. 

intermediate,  52. 

verifying,  40. 
Balancing  the  each,  18. 
Bank  column  on  cash  book,  70. 
Basic  cost,  134,  135. 
Basis  of  computations  (cost  finding) ,  91 . 

of  percentages,  100. 
Beginning  to  operate  the  cost  system, 
119. 

to  use  cost  system  forms,  118. 

21  3 


Bills  payable,  schedule  of,  265. 

verifying,  41. 
Bills  receivable,  discounted,  77. 

schedule  of,  262,  311. 

verifying,  40. 
Binding  reports,  86. 
Block  a  ledger,  60. 

when  to,  63. 
Bonds  of  a  new  corporation,  44. 

outstanding,  verifying,  42. 

verifying,  40. 
Branch  office  accounts,  75. 
Building  and  machinery  repairs,  164. 

supplies,  168. 
Business  done,   condensed   statement 
of,  227,  228,  229,  230,  231,  232, 
234.  23s,  306,  308. 

Capital  accounts,  7. 

Capital  stock,  44. 
verifying,  42. 

Capitalization,  entries  for,  43. 

Carton  cost  system,  working  instruc- 
tions of,  130. 

Cash,  verifying,  40. 

Cash  book,  198,  202. 

Cash  fund,  69. 

Cash  payables,  71. 

Cash  payments  entry,  71. 

Cash  receipts  entry,  69. 

Cash  sales,  70. 

Certificate  from  banks,  18. 

Certificate  of  indebtedness,  verifying, 
42. 

Certified  balance  sheet,  51. 

Character  of  business,  3. 

Charge  sHp,  182,  183. 

Charges  for  freight,  107. 

Charges,  planning,  105. 

Chart  of  cost  system,  93. 

Check  marks,  85. 

Checking,  86. 


13 


314 


INDEX 


Checks  outstanding,  i8. 
Classes  of  expenditures,  94. 
Closing  books  of  corporations,  85. 

of  partnerships,  85. 
Cloth  estimating  sheet,  212. 
Collection  of  bad  debts,  79. 
Colored  pencils,  26. 
Combining  card  board,  133. 
Commencing  the  cost  system,  119. 
Commission  on  sale  of  capitalization, 

79- 
Comparative  balance  sheet,  278,  300. 
Comparative  condensed  trial  balance, 

39- 
Comparative  statements,  52,  302. 
Comparative  statistics,  309. 
Completed  cost  sheets,  99. 
Comprehensive  analysis,  27,  34. 
Computing  costs,  116,  117,  125. 

no  system,  125. 
Concrete  plan  of  operating  cost  system, 

94. 
Condensed    statement    of    profit    and 
loss,  109,  no.  III,  112,  113. 
of  business  done,  227,  228,  229,  230, 
231,  232,  234,  235,  306,  308. 
Condensed     trial     balance,     38,     304, 

310. 
Control  accounts,  82. 
Control  of  material,  119. 
Control  sheet,  204,  205. 
Controlling  accounts,  planning  of,  93. 
Corporations,  closing  books  of,  85. 

new,  44. 
Cost,  estimating,  13. 
finding,  89,  116,  117. 
of    manufacturing    typewriters,    es- 
timating, 126. 
Costs,  computing,  116,  117,  125. 

no  system,  125. 
Cost  journal,  192. 

Cost  sheet,  180,   186,  191,  193,  213. 
Cost  sheets,  completed,  99. 
Cost  system,  beginning  to  operate,  119. 
commencing  of ,  119. 
concrete  plan  of  operating,  94. 
entries  for  general  books,  95. 
forms,  beginning  to  use,  118. 
installing  of,  118. 
operating  of ,  93,  98,  129. 
method  of,  93,  98. 
plan  of,  93,  98. 


!   Cost  system,  planning  of,  93,  102. 
putting  in  operation  of,  119. 
what  is  a,  89. 
Cost  systems,  89. 

figures  on  ledger,  95. 
for  carton  factory,  128. 
cotton  mill,  135. 
drug  laboratory,  146. 
silk  mill,  152. 
woolen  mill,  154. 
lithographing,  161. 
kinds  of,  91. 
Cotton,  135. 

Cotton  mill  cost  system,  working  in- 
structions, 140. 
Cotton  waste,  135. 
Cutting  lumber  in  circles,  121. 

Daily  balance  sheet,  72, 

Dates  used  in  report,  84. 

Deciding  heading  for  analysis   sheet, 

29. 
Department  expenses,  81,  145,  164. 

provision  for,  102. 
Department  cost  system,  91. 
Department  cost  sbeet,  193. 
Department  pay  rolls,  115. 
Department  supplies,  167. 
Deposits  not  on  cash  book,  24. 
Differences  on  a  ledger,  54. 
Discount,  interest  and,  39. 

verifying  unexpired,  41. 
Discount  column  in  cash  book,  70, 
Distributing   unproductive   labor  and 

expense,  115. 
Dividends,  from  investments,  80. 

paid,  39. 

waived,  80. 
Division  of  expenses,  145, 
Drug   cost    system,    working   instruc- 
tions, 148. 

Elements  of  cost,  89. 
Emulsions,  148, 

envelope  for,  185. 
Entries  for  capitalization,  43. 

for  general  books  (cost  system),  95. 
Envelope  for  assembling  charges,  134. 
Estimating  cost,  13. 

of  manufacturing  typewriters,  126. 
Excessive  valuation  of  inventories,  83. 
Exchange,  71. 


INDEX 


315 


Exhibit,  78. 

what  is  an,  78. 
Expense  account  (cost  system),  98. 
Expense  cost,  145,  151. 
Expenses,  provision  for,  10 1. 
Expenses  and  profits,  157. 

Factory  expenses,  81. 

provision  for,  102. 

and  suppHes,  106,  165. 
Factory  records,  105. 
Factory  supplies,  167. 
Figuring  of  charge  for  lumber,  121. 

of  pay  roll,  120,  121. 

of  square  stock,  121. 
Financial  audit,  37. 

plan  of,  37. 
Finding  of  material  cost,  118. 

of  labor  cost,  119. 
Finished  product,  169. 
First  audit  of  a  new  corporation,  44. 
Fiscal  periods,  51. 
Fixed  assets  and  liabilities,  7. 
Foreman's  wages,  104. 
Form  of  certificate,  52. 

of  report,  52,  86. 
Frame  spinning,  137. 
Fraud  and  embezzlement,  26. 
Futures,  157. 

General  audit,  3. 

plan  of,  9. 
General  books  and  a  cost  system,  10 1, 
General  expense  supplies,  168. 
General  expenses,  81,  145,  165. 

provision  for,  102. 
General  ledger  index,  73. 
General  suggestions  for  audit,  14. 
General  system,  planning  a,  65. 
Gifts  to  a  corporation,  80. 
Good  will,  81. 
Grouping  the  books,  7. 

Heat,  light,  and  power,  106,  164. 

supplies  of,  168. 
Home  office  expenses,  80. 

Idle  periods,  100. 

Important  features  of  a  business,  no, 

III. 
Improved  voucher  system,  74. 
Inactive  periods,  100. 


Installing  a  cost  system,  118. 
Insurance,  verifying  unexpired,  41. 
Insurance  and  taxes,  165. 
Interest  and  discount,  39. 
Interest  on  capital,  84. 
Interested  parties,  43. 
Intermediate  balance  sheets,  52. 
Invective  language,  49. 
Inventories,  verifying,  41. 
Inventory,  84. 

for  cost  system,  167. 
taking,  119. 

when  to  take  an,  119. 
Items  not  deposited,  24. 
Items   previously   charged   capitaliza 
tion,  83. 

Kinds  of  cost  systems,  91. 

Labor,  104. 

cost  of,  142,  150,  166. 
finding,  119. 

in  trading  account,  79,  112. 

on  ledger,  98,  102. 
Letter  heading,  86. 
Light  and  power,  106. 
Loans,  verifying,  42. 
Locating  differences,  54. 
Long  term  expenses,  73,  168, 
Looking  over  plant,  103. 
Lumber,  figuring  charge  for,  121. 

Machinery  expense,  151. 
Machine  costs,  93. 
Machine  hour,  93. 
Machine  shop  expense,  106. 
Main  exhibits,  85. 
Making  adjustments  to  ledger,  46. 
Making  cloth,  139. 
Making  notes,  48. 
Making  paste,  133. 
Making  plan  of  audit,  9. 
Making  yam,  137. 
Manufacturing  account,  250,  276. 
Manufacturing   and    trading,    account 
of,  244,  294,  296,  298. 

report  on,  50. 
Manufacturing  business,  auditing  a,  4. 

report  on,  50. 
Material,  97,  104,  118. 

classification  of,  167. 

consumed  of,  149,  150. 


3i6 


INDEX 


Material,  cost  of,  145. 
finding,  118. 
received,  148. 
Merchandise,  169. 
Method  of  operating  cost  system,  93, 

98. 
Mill  expenses,  145. 
Mixing  glue,  133. 
Monthly  entries,  72. 
Monthly  statements,  200,  206. 
Mule  spinning,  137. 

New  corporations,  44. 
Notes,  42,  48. 
Nominal  accounts,  7. 
Non-productive  labor,  105. 

Opening  cotton,  135. 

Opening  a  new  ledger,  73. 

Operating,  report  on,  51. 

Operating  cost  systems,  93,  98,  129. 

Opinions,  48. 

Order  of  work,  13. 

Order  tag,  181.      * 

Outline  of  auditing  cash,  17. 

Partnerships,  closing  books  of,  85. 
Pay  roll,  119,  129,  166. 

account,  98. 

detail  of,  120. 

figuring  of ,  120,  121. 

summary  of,  184, 
Percentage   costs,    91,    100,    loi,   108, 

114. 
Percentages,  use  of ,  116,  117. 

verifying,  10 1. 
Performing  a  financial  audit,  3. 

a  general  audit,  3. 
Periodical  audits,  26. 
Perpetual  inventory,  106. 
Personal  accounts,  7. 
Petty  cash  fund,  69. 
Picker  tickets,  189. 
Planning  of  a  general  system,  65. 

of  charges,  105. 

of  controlling  accounts,  93. 

of  cost  system,  93,  102. 
Plan  of  financial  audit,  37. 

of  general  audit,  9. 

of  operating  cost  system,  93,  98. 
Plant  and  equipment  written  off,  79. 
Power,  106. 


Preliminary  expenses,  44. 
Prime  costs,  90. 
Process  cost,  91. 
Productive  labor,  104. 

time  card,  174,  175. 
Production  ledger,  10 1. 
Profit  and  loss,  42. 

account,    238,    246,    252,    258,    272, 
292,  302, 

condensed   statement  of,    109,    110, 
III,  112,  113. 
Promoter's  expenses,  44,  80. 
Proof  of  cost  system,  100. 
Property,  verifying,  41. 
Provisional  account,  73,  194. 
Provision    for    department    expenses, 
102. 

for  expenses,  10 1. 

for  factory  expenses,  102. 

for  general  expenses,  102. 

for  selling  expenses,  102. 
Purchase  journal,  68,  196,  201. 
Purchase  ledger  column,  70. 
Purchases,  43,  67. 

in  report,  84. 
Putting  cost  system  in  operation,  119. 

Quarterly  statements,  136. 
Queries,  85. 

Real  accounts,  39. 

Receipts    on    account    of    mortgages, 

24. 
Received  registry  sheet,  132,      • 
Receiving  book,  176. 
Reconciliation  of  cash  payments  and 
vouchers,  22. 

of  cash  receipts  and  deposits,  24. 

of  check  book  and  bank  vouchers, 
22. 

of  check  book  and  pass  book,  23. 

of  payments  and  checks,  21. 

of  receipts  and  deposits,  23. 
Register  number,  107, 
Registering  material,  107, 
Registering  sheet,  176. 
Relation  of  profits  to  investment,  82. 
Report  on  manufacturing  and  trading, 

so- 
on manufacturing  business,  50. 
on  operating,  51. 
on  several  plants,  52. 


INDEX 


317 


Report  on  trading  business,  49. 

on  treasurer's  accounts,  51. 

preparing,  48. 
Reports  in  general,  51. 
Report  text,  282. 
Roving,  143. 

Salary  and  wages,  ^^. 
Sales,  43. 

Sales  journal,  67,  197. 
Sales  ledger  column,  70. 
Sales  of  waste,  1 1 1 . 
Sales  office,  166. 
Schedule,  78. 

of  accounts  payable,  208-9,  266. 

of  accounts  receivable,  263. 

of  bills  payable,  265. 

of  bills  receivable,  262,  311. 

of  unexpired  insurance,  264. 

what  is  a,  78. 
Schemes  for  simplifying  work,  120. 
Section  a  ledger,  57. 
Selling  expenses,  iii,  165,  168. 

provision  for,  102. 
Selling  price,  109,  116,  117. 
Shipments  of  medicine,  151. 
Shoddy  making,  158. 
Shop  order,  91. 
Simple  analysis,  27,  28. 
Source  of  statements,  86. 
Spinning,  143. 
Square  stock,  122. 
Statement,  78. 

what  is  a,  78. 
Statements  made  by  others,  86. 
Stock  card,  108,  179. 
Stocks,  verifying,  40. 
Store  room,  107. 
Summary  of  analysis,  36. 

of  analysis  sheets,  $$. 

of  cash  book,  19. 

of  check  book,  19. 

of  pass  book,  20. 
Supplies,  84,  90. 
Surplus  account,  270,  290. 
Surplus,  verifying,  42. 
Surrendered  capitalization,  80. 

Tags,  188,  190. 

Taking  an  inventory  for  cost  system, 

119. 
Taxes,  insurance  and,  165. 


Time  cards,  131,   132,   173,   174,   i    5. 
Trading  account,   240,   248,  254,  260, 

274. 
Trading  business,  auditing  of,  5. 

report  on,  49. 
Transportation  of  figures,  56. 
Treasurer's  accounts,  report  on,  51. 
Trial  balance,  amplified,  77. 

condensed,  38,  304,  310. 
Trying  cost  system  forms,  118,  119. 
Twister  ticket,  189. 

Unexpired  discount,  80. 

verifying  of,  41. 
Unexpired  insurance,  78. 

schedule  of,  264. 

verifying  of,  41. 
Unproductive  labor,  105,  164. 
Use  of  percentages,  116,  117. 

Vendor's  agreement,  44. 
Verifying  accounts  payable,  41. 

accounts  receivable,  40. 

balance  sheet,  40.' 

bills  payable,  41. 

bills  receivable,  40. 

bonds,  40. 

bonds  outstanding,  42. 

capital  stock,  42. 

cash,  40. 

certificate  of  indebtedness,  42. 

inventories,  41. 

loans,  42. 

percentages,  10 1. 

property,  41. 

stocks,  40. 

surplus,  42. 

unexpired  discount,  41. 

unexpired  insurance,  41. 
Voucher  check,  82. 
Voucher  record,  74. 
Voucher  register,  68. 
Voucher  system,  improved,  74. 
Vouching  payments,  21,  25,  26. 

Wages  of  foreman,  104. 
Waste,  135. 
Warper  ticket,  189. 
Weaving,  143. 
Weekly  closing,  129. 
Weekly  time  card,  175. 
What  is  a  cost  system  ?  89. 


3i8 


INDEX 


What  is  a  schedule?  78, 

a  statement?  78. 

an  exhibit?  78. 
When  to  block  a  ledger,  63. 

to  take  an  inventory,  119. 
Woolen  mill  cost  system,  working  in- 
structions, 154. 
Wool  sorting  and  washing,  157, 
Work  in  process,  98. 

in  process  account,  96. 

in  process  inventory,  168. 
Work  order,  132,  177,  178. 


Work  purchased,  89. 
Working  instructions  for  carton  cost 
system,  130. 

for  cotton  mill  cost  system,  140. 

for  drug  cost  system,  148. 

for  woolen  mill  cost  system,  154. 
Working  papers,  14. 

Yam  estimating  sheet,  211. 
Yarn  made  from  waste,  145. 
Yam  supplementary  wages,  144. 
Yam  supplies,  144. 


(1) 


UNIVERSITY  OF  CALIFORNIA  LIBRARY 
BERKELEY 

Return  to  desk  from  which  borrowed. 
This  book  is  DUE  on  the  last  date  stamped  below. 


.Sjgy^ 


FEB 


18 


1948 


13Jan'57FC 
REC'D  LD 

28  1956 


JAN    3  1966  6 
REC 

LOAN 


DEPT. 


LD  21-100m-9,'47(A5702sl6)476 


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